Cyprus companies can be used very efficiently for group financing activities. Cyprus has
no thin capitalization rules or withholding tax on interest. A Cyprus financing company
can provide subsidiaries interest bearing loans using the wide double tax treaty
network of Cyprus. This can result in a double dip effect provided the financing is undertaken from a tax efficient location, i.e. interest will be tax deductible in the operating location and will be tax free in the recipient jurisdiction. Any margin remaining in the Cyprus Company will be subject to income tax at the rate of 12.5%.

The basic Financing Company Structure may be described as follows:

• A Holding Company is registered in a zero tax jurisdiction with operating subsidiaries in countries where interest is tax deductible;
• A subsidiary of the Holding Company is registered in Cyprus for the purposes of group financing;
• The Holding Company advances loans bearing interest to the Cyprus Financing Company;
• The Cyprus Financing Company uses the loans advanced from the Holding Company to advance loans bearing interest with a small margin to the operating subsidiaries;
• The operating subsidiaries deduct the loan expense from their profits, thus reducing their tax liability in their country of operation;
• The operating subsidiaries repay their loans to the Cyprus Finance Company without any withholding tax under the wide Double Tax Treaties that Cyprus has established;
• The Cyprus Finance Company repays its loans to the Holding Company without deduction of withholding tax;
• The Cyprus Finance Company pays tax at 10% on the difference between interest received and interest paid;
• The Holding Company receives interest from the Cyprus Finance company and pays no tax as it is registered in a tax free jurisdiction.