Is Luxembourg Losing Its Edge? Why More Groups Are Looking to Cyprus for EU Holding Structures

The tax planning environment in Europe is evolving rapidly. Long considered a cornerstone of EU holding and financing structures, Luxembourg is now facing unprecedented legal and political scrutiny—prompting many multinationals, family offices, and private investors to reconsider its long-term viability as a structuring hub.

Recent developments, including high-profile CJEU rulings, increasing EU Commission pressure, and the practical impact of ATAD III substance requirements, have collectively undermined the predictability that once defined Luxembourg as a premier holding jurisdiction.

In contrast, Cyprus is emerging as a compelling alternative—offering legal clarity, regulatory stability, and a robust set of tax advantages grounded in real substance.

What Is Happening in Luxembourg?

In the past month, Luxembourg has found itself at the centre of several challenges to its tax regime:

• CJEU scrutiny: Recent rulings have raised questions over the compatibility of Luxembourg’s dividend exemptions with EU law, particularly where such exemptions may favour certain taxpayers or treaty interpretations.
• Increased administrative oversight: The Luxembourg tax authorities have adopted a more cautious stance in approving treaty benefits, particularly for structures lacking sufficient economic substance.
• ATAD III pressure: The EU’s impending implementation of shell company rules places additional compliance burdens on low-substance Luxembourg entities, raising the risk of benefit denial across the board.

The combined effect is a jurisdiction facing both real and perceived regulatory headwinds—especially for groups seeking certainty in their cross-border tax planning.

Why Cyprus is Becoming the Preferred Alternative

Cyprus offers a well-established, OECD-compliant tax framework that aligns with the needs of modern holding and investment structures. Some of the jurisdiction’s most attractive features include:

• Participation Exemption: Dividends and capital gains from qualifying shareholdings are exempt from tax in Cyprus, provided minimal conditions are met—such as non-portfolio character and non-blacklisted origin.
• No Withholding Tax: Cyprus does not levy withholding tax on dividends, interest, or royalties paid to non-residents (subject to certain exceptions for Cyprus tax residents).
• Low Corporate Tax Rate: The 12.5% corporate income tax rate remains one of the lowest in the EU, with no hidden surcharges or municipal taxes.
• Substance-Friendly Environment: Unlike many jurisdictions, Cyprus enables companies to build genuine economic substance at reasonable cost, thanks to its lower office rents, availability of skilled professionals, and supportive business infrastructure.
• Strong Legal and Regulatory Framework: Cyprus operates under English common law principles and offers legal certainty in contract enforcement, asset protection, and dispute resolution.
• Treaty Network: With over 65 double tax treaties, Cyprus offers extensive tax treaty access to support cross-border investment.

Strategic Advantages for Multinationals and Private Clients

For groups shifting focus away from Luxembourg, Cyprus offers not only tax efficiency, but also a lower-risk environment amid tightening global regulations.

Family offices, private equity funds, and listed groups increasingly seek jurisdictions where they can demonstrate both tax compliance and economic relevance. Cyprus strikes this balance more effectively than many of its Western European counterparts, without sacrificing access to the EU market or treaty benefits.

Moreover, in light of the EU’s growing focus on anti-abuse and minimum substance requirements, structures in Cyprus can be more easily aligned with actual business operations—whether in the form of regional headquarters, shared services centres, or investment holding vehicles.

How Savva & Associates Supports Restructuring

At Savva & Associates, we have extensive experience assisting international clients in designing, establishing, and migrating efficient holding structures to Cyprus. Our services include:

• Comparative jurisdictional analysis
• Tax-efficient group restructuring and redomiciliation
• Cyprus company formation and substance setup
• Ongoing tax compliance, legal, and administrative support

Whether you are managing a corporate group, a family wealth structure, or a private investment vehicle, Cyprus may now offer the strategic stability and efficiency that Luxembourg no longer guarantees.

To learn more about transitioning to Cyprus or to assess whether your existing structure remains fit for purpose, contact us at [email protected].

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