Holding, OpCo and IP Company in Cyprus 2026: Three Companies, Three Roles, and Royalties Structured to Flow Clean

Status as of 4 November 2026: based on the Cyprus Income Tax Law 118(I)/2002, in particular section 9(1)(k) on intangible assets, and the Special Defence Contribution Law 117(I)/2002, both as amended by Laws 244(I)/2025 and 245(I)/2025 (in force from 1 January 2026), Tax Department Circular 1/2026 and its list of low-tax jurisdictions, the Cyprus withholding tax rules on royalties as summarised by PwC Cyprus (last reviewed 4 August 2026), Council Directive 2003/49/EC (the Interest and Royalties Directive), the OECD nexus approach under BEPS Action 5, the German Income Tax Act (§§ 50a, 50c and 50d EStG), the German Foreign Tax Act (§§ 1, 6 and 8 AStG), the German Fiscal Code (§ 10 AO) and the Romanian Fiscal Code. We will update this guide when the law or official practice changes.

Picture the founder who did everything right. Ten years of building a software product. Customers in twelve countries. A team that ships every week. And every year, the same letter from the tax office: a bill that treats the fruit of a decade of risk as if it had fallen from a tree into the state's lap.

Then picture the same founder after a coffee with someone who has seen how the large groups do it. The product does not belong to the company that sells it. It belongs to a company that built it and owns it. A third company sits above both, collects what they earn and keeps it safe for the next venture. Three companies. Three roles. One owner who decides.

Until now, this architecture was the privilege of the multinationals, with whole floors of advisers who design how intellectual property, operations and capital are separated. The state calls it aggressive when you do it and calls it investment when they do it. Now you can do it too, with the same logic, in an EU member state, through ENCC. We design the structure, and licensed lawyers, accountants and tax advisers in Cyprus and in your home country set it up in their own name.

The line in the middle of the drawing is where the structure earns its keep, and it is the reason this guide exists. It is the royalty the company that sells pays to the company that owns the IP. Set up correctly, that line can carry no withholding: dividends go up under the exemptions and royalties travel under a tax treaty or the Interest and Royalties Directive. The IP Box then keeps your rate on that profit at about 3%. The 10% Cyprus withholding on certain royalties, and the withholding your home country applies, are rates that a well built structure is designed not to pay. This guide shows you how we set it up.

This guide shows you what each of the three companies does, how the money should flow, where the 10% hides, what your home country checks and how we build it so that it stands in every audit.

The key points

• Three companies, three jobs. The holding owns and protects. The operating company, the OpCo, sells and serves customers. The IP company, the IPCo, develops and owns the intellectual property and licenses it.
• The IP Box sits in the IPCo. Under section 9(1)(k) of the Cyprus Income Tax Law, 80% of the qualifying profit from qualifying IP is deductible. At the 15% rate in force from 1 January 2026, the effective rate on that profit is about 3%.
• The holding sits on top. Dividends received by a Cyprus company are generally exempt from income tax, and gains on the sale of shares are generally outside Cyprus income tax, subject to the exceptions in the law.
• Royalties that travel clean. When the OpCo and the IPCo are both Cypriot, the royalty is a domestic payment with no withholding. When the IP owner sits abroad, a tax treaty or the Interest and Royalties Directive lets the royalty leave Cyprus without the 10% withholding that otherwise applies to rights used in Cyprus (per the PwC Cyprus withholding tax summary, as of November 2026). We also keep the recipient off Annex I of the EU list of non-cooperative jurisdictions and off the Cyprus low-tax list, where a 10% withholding or, from 2026, non-deductibility would apply.
• Royalties from Germany or Romania, structured in advance. If the OpCo stays in Germany or Romania, the treaty with Cyprus or the Directive can remove or reduce the home withholding. We put the certificates and paperwork in place before the first payment, so the relief can apply at source.
• Your home country looks at substance. Germany treats income taxed below 15% as low-taxed under § 8 AStG, and licensing income counts as active only if the foreign company exploits its own research and development.

Dividends and royalties: two different flows

A worked example with numbers

A Romanian SRL sells software. The Cyprus holding owns 100% of the SRL and 100% of the Cyprus IPCo, which owns the software. In one year the SRL pays the IPCo a royalty of EUR 100,000 and later pays the holding a dividend of EUR 200,000.

• Royalty, structured with the Interest and Royalties Directive. The holding has owned at least 25% of both companies directly for at least two years, and the attestation is filed at payment. If the IPCo is the beneficial owner with real substance, nothing is withheld in Romania. This is the setup we aim for.
• Royalty, treaty route while the two years run. The IPCo gives the SRL its Cyprus tax residence certificate before payment. The SRL withholds at most 5% for patents, trademarks or know-how: EUR 5,000.
• For comparison, without any setup. The SRL would withhold 16%: EUR 16,000 would stay in Romania.
• What Cyprus does with the royalty. For simplicity, assume the Cyprus tax on this royalty under the IP Box is about EUR 3,000. Foreign withholding is credited only up to that amount. With the Directive, nothing is lost; with the treaty, EUR 2,000; without any setup it would be EUR 13,000. That difference is what the structure is designed to keep, when its conditions are met every year.
• Dividend. The holding has owned at least 10% of the SRL for at least one year. Under the Parent-Subsidiary Directive, Romania withholds nothing on the EUR 200,000, and the dividend is exempt from corporate income tax in the Cyprus holding. Without those conditions, Romania would withhold 16%: EUR 32,000.

The lesson: the dividend line is usually simple, and the royalty line is where good structuring pays off most. The rest of this guide shows how we set it up.

Key terms, in plain words

Holding company (HoldCo). A company whose main asset is shares in other companies. It receives dividends, sells subsidiaries when the time comes and finances new ventures.

Operating company (OpCo). The company that has the customers, the contracts, the sales team and the invoices. It earns the trading profit.

IP company (IPCo). The company that develops and owns the intellectual property, for example the software code or the patent, and grants other companies the right to use it in exchange for a royalty.

Royalty. A payment for the right to use intellectual property: a licence fee for software, a patent royalty, a payment for know-how.

Withholding tax. A tax the paying company deducts from the payment and pays to its own state, before the money reaches the recipient. The recipient gets the net amount.

Associated company. For the 2026 Cyprus defensive rules, a company in which one holds more than 50% of the votes, the capital or the profits, directly or indirectly, or which is under common control.

Nexus fraction. The OECD formula that decides which share of the IP profit counts for the IP Box. In short: the more of the development the IPCo does itself, the higher the share.

Why three companies and not one

The core idea: each company carries one kind of risk, so that one problem never touches everything you have built.

Most founders start with one company that does everything. It writes the code, sells the product, signs the office lease, employs the team and holds the cash. That works until it does not. A lawsuit from a customer reaches the code. A dispute with a landlord reaches the savings. A buyer who wants the sales business has to take the IP with it, or a long carve-out begins.

Separation fixes three things at once.

• Protection. The asset you would least like to lose, the IP, sits in a company that has no customers and no trading risk. The cash you have already earned sits in the holding, one level higher.
• Tax logic. Each type of income lands where the law treats it best. IP profit lands in the IPCo, where the IP Box can apply. Trading profit is taxed at 15% in the OpCo. Dividends travel up to the holding, which can receive them exempt from income tax.
• Exit and growth. A buyer can acquire the OpCo with a licence, or the IPCo with the IP, or the holding with everything. A new venture can start as a fourth company under the same holding, financed by profits that never had to pass through your personal tax return.

That is the logic multinationals have used for decades. The difference is that you do it in an EU member state with published rules, real people and real decisions, not in a letterbox.

A structure is not a hiding place. It is an architecture. And architecture is what separates owners from employees of their own company.

Company 1: the holding, the guardian

The holding's job is to own, to collect and to wait for the right moment.

In Cyprus, a holding company is taxed at 15% on its taxable profit from 2026, but the profits that typically reach a holding are largely outside that charge.

• Dividends received. Dividends received by a Cyprus company are exempt from corporate income tax. The exemption does not apply where the dividend was deductible for the paying company, a rule aligned with the EU anti-hybrid amendments to the Parent-Subsidiary Directive.
• Special Defence Contribution on foreign dividends. A Cyprus company receiving dividends from abroad pays no SDC unless the paying company is mainly passive and its foreign tax burden is substantially lower than the Cyprus burden. Our Cyprus holding company guide explains the test.
• Sale of subsidiaries. Gains on the sale of shares are generally outside Cyprus income tax. Cyprus capital gains tax applies to Cyprus immovable property and to shares of companies that own such property, not to an ordinary sale of a trading or IP subsidiary.
• Outbound dividends. Cyprus does not withhold on dividends paid to non-resident shareholders, with two exceptions from 2026: 5% on dividends paid to associated companies in listed low-tax jurisdictions, and 17% where the associated company is in a jurisdiction on Annex I of the EU list. For you as an individual shareholder who lives outside Cyprus, there is normally no Cyprus withholding on the dividend.

There is one more change you should know. From profits of 2026 onwards, the old deemed dividend distribution rule is abolished. Before 2026, a Cyprus company with Cyprus resident and domiciled shareholders had to distribute part of its profit, or be treated as if it had. That pressure is gone for new profits; transitional rules apply to earlier profits. The holding can now accumulate for the next venture without a forced distribution clock.

Where the holding lives matters. From 1 January 2026, a company incorporated in Cyprus is tax resident in Cyprus unless a tax treaty says otherwise. But the place where the board really decides still matters, especially for your home country. A holding run from your kitchen in Munich or Bucharest is not a Cyprus holding in the eyes of the German or Romanian tax office. We cover that below.

Company 2: the OpCo, the engine

The OpCo earns the money. It is the company your customers know.

The OpCo signs the customer contracts, invoices, employs the sales and support team and carries the commercial risk. Its profit is taxed where it is resident and managed. In a typical ENCC structure, the OpCo is in one of three places.

• In Cyprus. If you move to Cyprus, the OpCo often moves with you or is founded there. Trading profit is taxed at 15%. The OpCo pays the IPCo a royalty, which reduces its taxable profit, and the IPCo applies the IP Box to it.
• In your home country. If your team and customers are in Germany or Romania and stay there, the OpCo may remain a GmbH or an SRL. It pays a royalty abroad to the Cyprus IPCo. This is the configuration where the home state looks hardest.
• Elsewhere. Some founders sell through a US company to US customers, or through a company in the Gulf. Each of those adds its own withholding and transfer pricing rules.

The royalty the OpCo pays is the bridge between the engine and the IP. It is also the line we design with the most care, so that it can cross without withholding.

Company 3: the IPCo, the vault

The IPCo is where the value is created and kept: the code, the patents, the models.

The Cyprus IP Box rewards companies that build IP, not those that buy a licence and pass it on. The essentials, as covered in depth in our guide to the Cyprus IP Box:

• Qualifying assets. Patents and similar rights, copyrighted software and, for smaller companies, certain other certified inventions. Trademarks, brand names and other marketing IP are outside.
• The deduction. 80% of the qualifying profit is deductible. The remaining 20% is taxed at 15%, which gives about 3% on that profit.
• The nexus fraction. Qualifying expenditure, plus an uplift of up to 30% of it, divided by overall expenditure. Development done by the IPCo itself, or outsourced to unrelated parties, counts as qualifying. Development bought from related parties and the cost of acquiring the IP do not.
• Qualifying income. Royalties and licence fees, the part of product or service income earned by the IP, compensation for infringement and, where it is capital in nature, the gain on disposal of the qualifying asset.
• Losses. Only 20% of a loss from a qualifying asset can be carried forward or set off.

For the three company structure, one sentence matters most: the IPCo must be the company that develops. If your developers are employed by the OpCo and the IPCo merely holds a registration, the nexus fraction falls, the German CFC rules wake up and the structure loses its point.

The money flow, step by step

Here is how a well built flow looks in a typical structure where you have moved to Cyprus and all three companies are Cypriot. The figures are an illustration, not a real client.

1. Customers pay the OpCo. Annual revenue EUR 2,000,000. Operating costs, salaries of sales and support staff, marketing: EUR 1,100,000.
2. The OpCo pays the IPCo a royalty. Set at an arm's length rate, supported by a transfer pricing analysis, for example EUR 600,000. The OpCo's taxable profit is EUR 300,000. Tax at 15%: EUR 45,000.
3. The IPCo earns the royalty. Its development team in Cyprus costs EUR 250,000, so its income from the asset after direct costs is EUR 350,000. All development is in house, so the nexus fraction is 100%. The 80% deduction is EUR 280,000. Taxable profit EUR 70,000. Tax at 15%: EUR 10,500.
4. Dividends go up to the holding. Both subsidiaries distribute. The holding receives the dividends exempt from income tax. Between Cypriot companies, there is no withholding.
5. The holding decides. It keeps the money for a new venture, invests it or distributes it to you. As a Cyprus tax resident who is not domiciled in Cyprus, you pay 0% SDC on the dividend within the conditions of the law, plus GESY health contribution at 2.65% within the annual cap of EUR 180,000.

On EUR 900,000 of combined profit before royalty, the group pays EUR 55,500 in corporate tax in this illustration, about 6.2%. Compare that with what the same profit would cost in a single German GmbH or a Romanian SRL with a dividend to the owner.

No royalty withholding appears in this picture, because a royalty paid by one Cyprus company to another is a domestic payment. That is the first lesson: with the OpCo and the IPCo both in Cyprus, the royalty line carries no withholding. When your IP or your OpCo sits elsewhere, the next section shows how we set up the line so it stays that way.

Royalties with relief from withholding: how we set it up

The goal: profit moves from the OpCo to the IPCo and up to the holding without withholding tax along the way. Cyprus does not tax royalties paid abroad in general, and the three situations where it does withhold can usually be avoided with the right setup, when the conditions are met. Here is how we design each line.

Step 1: dividends go up exempt

Dividends received by a Cyprus company are generally exempt from income tax, and between Cypriot companies there is no withholding. When a subsidiary sits in another EU member state, the Parent Subsidiary Directive, as implemented by that state, lets dividends reach the Cyprus holding without withholding when its holding and period conditions are met. We set up the shareholding so those conditions are met from the start.

Step 2: the IP sits where the royalty is paid from, or a treaty covers the line

Cyprus withholds 10% on royalties paid to a non-resident for rights used within Cyprus (per the PwC Cyprus withholding tax summary, as of November 2026); for film rights the rate is 5%. Royalties for rights used outside Cyprus are not subject to this withholding. So we build the line in one of three ways:

• Bring the IP into Cyprus. With the IPCo in Cyprus, a royalty from a Cyprus OpCo is a domestic payment and nothing is withheld. If the IP sits today in an old US LLC, a Gulf free zone company or an offshore company, we coordinate its migration, valued and documented, after checking the exit consequences at the source.
• Use a tax treaty. Cyprus has an extensive treaty network. Under several Cyprus treaties royalties are not taxed in the source state for a qualifying beneficial owner; others keep a reduced rate. We check the treaty that applies to your case.
• Use the Interest and Royalties Directive. Between associated companies in two EU member states, royalties can be paid without withholding under the conditions of the Directive, including a minimum holding of 25% and beneficial owner status. We set up the shareholding to meet them.

Whichever route fits your case, we put the paperwork in place before the first payment, so the relief can apply at source from the first payment when the conditions are met. Where a condition is not yet met at payment, tax is withheld and can be reclaimed where the law allows.

Step 3: the recipient sits in a cooperative jurisdiction

Since 31 December 2022, with a revision in April 2025, Cyprus withholds 10% on royalties paid to companies resident or incorporated in jurisdictions on Annex I of the EU list of non-cooperative jurisdictions, excluding payments by individuals, wherever the rights are used. The solution is simple: the IP owner sits outside Annex I. The list is revised periodically, so we check the current Annex I before each payment. Cyprus applies these rules to a jurisdiction only when it is on the latest Annex I published in the Official Journal in the previous calendar year and is still on the version in force at the time of payment.

From 1 January 2026, with Law 244(I)/2025 and Circular 1/2026, royalties and interest paid by a Cyprus company to associated companies resident in a jurisdiction on the Cyprus low-tax list are not deductible for the payer. The 2026 list has eleven names: Anguilla, Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey, Turks and Caicos Islands and Vanuatu. Our guide to the Cyprus low-tax jurisdictions list explains the carve-outs. Keeping the IP owner off this list keeps the royalty deductible, provided it is at arm's length.

Step 4: royalties from Germany or Romania into Cyprus

When your OpCo stays in Germany or Romania and the IPCo is in Cyprus, we set up the line at the other end.

• From Germany. The treaty between Germany and Cyprus gives Germany no right to tax royalties paid to a Cypriot beneficial owner, and the Interest and Royalties Directive can also apply between associated companies. To get the relief at source instead of the 15% plus 5.5% solidarity surcharge withheld under § 50a EStG, we arrange the exemption certificate from the Federal Central Tax Office (BZSt) under § 50c EStG before the first payment. We also make sure the Cyprus company has the own activity and shareholders that § 50d(3) EStG looks for, with its own developers and its own management.
• From Romania. Romania applies 16% to royalties paid to non-residents unless relief applies, and we prepare the paperwork for the exemption. Under the Interest and Royalties Directive as implemented in the Romanian Fiscal Code, no withholding applies if the Cyprus company has held directly at least 25% of the Romanian company's capital, or a third EU company has held directly at least 25% in both, for an uninterrupted period of at least two years, with a tax residence certificate and a declaration on file, attested at the date of payment. Without the attestation at payment, tax is withheld and a refund can be claimed later (art. 255(11) and (14) of the Romanian Fiscal Code). We design the shareholding with these conditions in mind. Where they are not met, for example while the two years run, the Romania Cyprus treaty limits the rate to at most 5% for patents, trademarks or know-how with a Cyprus tax residence certificate filed with the payer.

Why we do this before the first invoice: a withholding paid abroad is normally creditable in Cyprus only up to the Cyprus tax on the same income, and with the IP Box that is about 3%. Relief at source keeps the full benefit of the IP Box in your structure.

We map every royalty and dividend line in your structure and prepare the paperwork for the relief for each one before the first payment. Ask us to map your royalties.

Five configurations, as cards

Card 1: all three in Cyprus, you live in Cyprus

The simplest arrangement in tax terms. No royalty withholding between Cyprus companies, IP Box in the IPCo, dividends up to the holding, Non-Dom on your personal dividends. The work is substance: two real companies with real staff and decisions in Cyprus, and a transfer pricing file for the royalty.

Card 2: Cyprus holding and IPCo, OpCo in Germany

Common for German founders who move to Cyprus but keep a German team. The German GmbH pays royalties to the Cyprus IPCo. Treaty and Directive relief require the BZSt certificate and survive § 50d(3) only with real activity in the IPCo. The German tax office also tests the royalty rate at arm's length and, if the IP was developed in Germany, the transfer of that IP out of Germany under § 1 Abs. 3b AStG. If you are still German resident, § 8 AStG is the central question.

Card 3: Cyprus holding and IPCo, OpCo in Romania

Typical for Romanian development agencies that turn into product companies. The SRL pays royalties to the Cyprus IPCo. Treaty rate at most 5% for patents, trademarks or know-how unless the Directive applies; place of effective management of the Cyprus companies must be in Cyprus, not in Cluj or Iasi; transfer pricing in both states. As long as you live in Romania, dividends you receive are taxed in Romania.

Card 4: Cyprus OpCo, IP left outside Cyprus

The configuration with the most to gain from restructuring. Royalties from the Cyprus OpCo to a foreign IP owner can trigger the 10% withholding if the rights are used in Cyprus and no treaty or Directive applies; 10% if the recipient is on Annex I; non-deductibility if the recipient is an associated company on the low-tax list. The solution we usually coordinate is to migrate the IP into Cyprus properly, valued and documented, with the exit tax consequences at the source checked first.

Card 5: two companies instead of three

Not everyone needs three. A founder with one product and no plan to sell may hold the OpCo and IPCo functions in one Cyprus company and apply the IP Box to the part of its income earned by the IP, without a royalty at all. A holding is added when there are several ventures, when a sale is planned or when profits should be ring-fenced. We tell you honestly which version fits, because each extra company has a running cost.

When the third company is worth it

Three companies cost more than one. The question is whether what they protect is worth more than what they cost.

In our analysis, the full three company structure starts to make sense when at least two of these are true:

• The IP has real value on its own and could be licensed to more than one OpCo, or sold.
• You plan an exit within five to ten years, and a buyer may want only part of the business.
• There is more than one operating business, or there will be.
• The OpCo carries real commercial risk: large customer contracts, regulated activity, liability for data or advice.
• You want to keep profits in a holding for reinvestment rather than distribute them.

When none of these applies, a single Cyprus company with the IP Box on the IP income, or an OpCo and a holding without a separate IPCo, is often the honest answer. That judgement is our job.

Substance: the part the brochures leave out

The key point: the companies must be real where they claim to be. That is what makes the result yours to keep.

Every state that looks at your structure asks the same question in different words: where are the decisions taken, and by whom? For the IPCo, a second question follows: who actually develops the IP?

How we do it right for you:

• Board and decisions in Cyprus. A qualified Cyprus resident director, board meetings on the island, minutes that record real decisions, signatures in Cyprus. Our guide to the place of effective management shows what a real board looks like.
• Developers in the IPCo. The people who write the code or run the research are employed by the IPCo, or the IPCo contracts unrelated developers. Development bought from related companies lowers the nexus fraction.
• Premises and systems. An office or at least dedicated space, bank accounts with EU banks that fit your business, payroll, accounting and audited accounts.
• A royalty with a reason. A transfer pricing analysis that explains why the rate is what independent parties would agree. Cyprus has transfer pricing documentation rules for related party transactions above thresholds set in the law, and the counterparty state has its own.
• Contracts that match reality. A licence agreement between OpCo and IPCo that describes what is licensed, the territory, the rate, the payment terms and who bears which risk.

If you live in Germany: what the Finanzamt checks

Germany will look at your Cyprus structure through four lenses. We design for all four before the first payment.

• CFC rules, § 8 AStG. If persons resident in Germany control the Cyprus company, its passive income taxed below 15% can be attributed to them. The IP Box rate of about 3% is below 15%. Licensing income is active only if the foreign company exploits the results of its own research and development, carried out without the participation of the German shareholder or persons close to him (§ 8 Abs. 1 Nr. 6 letter a AStG). Because Cyprus is an EU state, the company can also rely on the escape clause in § 8 Abs. 2 AStG if it carries on a substantial economic activity there.
• Place of management, § 10 AO. A company managed from Germany is taxable in Germany, whatever its register says.
• Transfer of functions, § 1 Abs. 3b AStG. If IP or a development function moves from a German company to Cyprus, the German tax office can tax the arm's length value of what moves.
• Exit tax, § 6 AStG. If you hold at least 1% of a company and have been subject to unlimited German tax liability for at least seven of the last twelve years, moving abroad can trigger tax on the unrealised gain on your shares, payable on application in seven annual instalments, usually against security. Our guide to German exit tax and the Cyprus year end shows the timing.

Germany repealed its former royalty deduction limit in § 4j EStG; it last applied for the 2024 tax year. Royalties from a German OpCo to a related Cyprus company are still tested under the arm's length principle and the rules above.

The practical conclusion: as long as you live in Germany, a Cyprus IPCo works only if it genuinely develops in Cyprus. The strongest version is the one where you move.

If you live in Romania: what ANAF checks

From Romania, the structure is a bridge: you can start it while you live in Romania and complete it when you move.

• Place of effective management. The Romanian Fiscal Code treats a foreign company as Romanian for tax if its place of effective management is in Romania. Then the Cyprus company is taxed in Romania at 16%.
• CFC rules. Article 40^5 of the Fiscal Code applies to Romanian companies that control low-taxed foreign companies, not to individuals who hold the shares directly. That is one reason we usually place the shares in your own name or in the Cyprus holding, not in a Romanian company.
• Withholding on royalties from Romania. 16% domestic, at most 5% for patents, trademarks or know-how under the treaty with Cyprus, nil under the Directive where its conditions are met, as described above.
• Dividends to you. As long as you live in Romania, dividends from the Cyprus holding are taxed in Romania at 16% from 2026, with credit for foreign tax. Profits can stay in the holding until you move.

Your personal side: the 60-day rule and Non-Dom

The structure reaches its full effect when you yourself become a Cyprus tax resident.

Cyprus offers something its EU neighbours do not: a tax residence that can be built with as little as 60 days a year on the island, where elsewhere the usual minimum is 183 days, half a year. Under the 60-day rule you must spend at least 60 days in Cyprus, not more than 183 days in any other single state, not be tax resident in another state, carry on a business or employment in Cyprus or hold an office with a Cyprus resident company, and keep a permanent home in Cyprus. Our 60-day rule calendar shows how to plan the days.

As a Cyprus tax resident who is not domiciled in Cyprus, you pay 0% SDC on dividends and interest within the conditions of the law, for up to 17 of the last 20 years. GESY health contribution of 2.65% applies within the annual cap of EUR 180,000. The structure then becomes what it was designed to be: profits taxed at 15% in the OpCo and about 3% in the IPCo, collected in the holding and paid to you as the owner.

The 60-day rule is not an automatic exit from your home country. Germany and Romania apply their own rules first, and only a treaty tie-breaker decides when both claim you. We plan your departure from the home side before the arrival in Cyprus.

How we do it: the sequence

1. The diagnosis. Where is the IP today, who developed it, where are you resident, where are the customers and the team? We map the current flows and the withholding on each one.
2. The design. Two or three companies, which roles, which jurisdiction for each, which royalty rate range. We show the target flow with figures.
3. The home side first. Valuation of the IP and the shares, exit tax and transfer of function questions in Germany, place of management and CFC questions in Romania, timing of your move.
4. Incorporation. Licensed corporate service providers in Cyprus incorporate the companies, register them for tax and VAT and set up the boards.
5. Migration of the IP. If the IP sits elsewhere, it is transferred to the IPCo at a documented value, with the source state consequences settled.
6. The licence and the transfer pricing file. The licence agreement, the benchmark for the rate, the nexus tracking from day one.
7. The paperwork for withholding. Tax residence certificates, BZSt exemption certificate for German payers, Directive declarations for Romanian payers, treaty forms elsewhere, all before the first royalty.
8. Banking. Accounts for each company with banks that fit your business, including EU banks outside Cyprus where that serves you better.
9. The yearly rhythm. Audited accounts, tax returns, IP Box computation, transfer pricing update, board calendar and your own day count.

The most common mistakes

• Leaving the IP where it was. The Cyprus OpCo then pays royalties abroad and meets the 10% withholding or non-deductibility.
• Putting the IP in an offshore company. A company in a listed low-tax jurisdiction receives royalties the Cyprus payer cannot deduct, and possibly a withholding on top.
• Paying the first royalty before the paperwork. Without the BZSt certificate or the Directive declaration, the home OpCo withholds in full and the refund takes months.
• An IPCo without developers. No developers, no nexus, no active licensing income under § 8 AStG.
• A board that exists only on paper. Management from Germany or Romania pulls the company back into the home state's tax.
• A royalty rate pulled from thin air. Without a transfer pricing analysis, both states can adjust the rate, and you pay twice.
• Ignoring the trademark. The brand is marketing IP and stays outside the IP Box. Its profit share must be separated.
• Three companies when one would do. Extra companies mean extra audits, extra boards and extra cost. Complexity is not a strategy.

Every mistake on this list has one thing in common: someone acted before mapping the flows. We map first. Start with your diagnosis.

Three illustrations

The following illustrations are composites to show how the rules work. They are not real clients.

The British SaaS founder who moved to Limassol

Oliver built a B2B scheduling platform in Manchester. He moved to Cyprus, met the 183-day test and obtained Non-Dom status. His UK company had developed the code. The plan: a Cyprus holding, a Cyprus OpCo for European customers and a Cyprus IPCo that hired his three core developers. The code was transferred from the UK company at a value agreed with his UK advisers. Royalties flow between Cyprus companies without withholding, the IPCo applies the IP Box and Oliver receives dividends from the holding with 0% SDC. The UK side was settled before the transfer.

The Polish development studio with a German client base

Anna and Piotr run a studio that builds industrial software. Their biggest customers are German. They keep a German sales GmbH for those customers. The Cyprus IPCo employs the development team that relocated with them. The GmbH pays royalties to the IPCo, with a BZSt exemption certificate obtained before the first payment, and the IPCo's own developers and board in Cyprus support the relief under § 50d(3) EStG. Anna and Piotr live in Cyprus, so the German CFC rules do not reach them personally.

The founder who almost kept the IP in an island company

Marco, an Italian founder, had his app's code in a British Virgin Islands company set up by an earlier adviser. When he moved to Cyprus and founded a Cyprus OpCo, the plan was to pay royalties to the BVI company. We showed him the effect: the British Virgin Islands are on the Cyprus low-tax list, so royalties to that associated company would not be deductible in the OpCo. The IP was migrated into a new Cyprus IPCo instead, with the development team, and the BVI company was wound down with advice on the Italian side.

The circle you join

The founders who build three company structures share a way of thinking. They do not wait for an exit offer to organise their company. They separate what they own from what they risk. They pay their developers in the company that owns the code. They read the law instead of the forum posts. And they know that the state's appetite for their success grows every year unless they decide where that success lives.

They are SaaS founders, game studios, engineering firms, medical device developers and agencies turning into product companies. ENCC coordinates the design and the sequence. Licensed lawyers, accountants and tax advisers execute each step in their own name. You get one plan, one point of contact and a team that has done it before.

FAQ

If the OpCo is in the EU, does the Parent-Subsidiary Directive not remove all tax between the OpCo and the Cyprus holding?

It removes withholding on dividends, if the holding conditions are met: at least 10% of the capital, kept for the period national law sets (one year in Romania, twelve months in Germany). It does not cover royalties. A royalty paid to the IPCo for using the brand or the software is a separate flow. The Interest and Royalties Directive can remove the source state withholding with a direct holding of at least 25% kept for two years; otherwise Romania withholds 16% (at most 5% for patents, trademarks or know-how under the treaty with Cyprus) and Germany 15% plus the solidarity surcharge.

What is a holding company structure with IP?

It is a group in which one company holds the shares, an operating company sells to customers and a separate IP company develops and owns the intellectual property, licensing it to the operating company for a royalty.

Does Cyprus withhold tax on royalties paid abroad?

Only in specific cases. Cyprus withholds 10% (5% for films) on royalties paid to non-residents for rights used in Cyprus (per the PwC Cyprus withholding tax summary, as of November 2026), unless a treaty or the Interest and Royalties Directive reduces it, and 10% on royalties paid to companies in jurisdictions on Annex I of the EU list.

Is there withholding between two Cyprus companies?

No. A royalty paid by one Cyprus resident company to another is a domestic payment and is not subject to the non-resident withholding.

What effective rate does the IPCo pay under the IP Box?

On qualifying profit with a full nexus fraction, about 3%, because 80% of the qualifying profit is deductible and the rest is taxed at 15%.

Can a German OpCo pay royalties to a Cyprus IPCo without German withholding?

The Germany Cyprus treaty gives Germany no right to tax such royalties, but relief at source requires a BZSt exemption certificate under § 50c EStG before payment, and § 50d(3) EStG requires real activity in the Cyprus company.

What withholding applies to royalties from Romania to Cyprus?

16% under Romanian law, reduced to at most 5% for patents, trademarks or know-how under the Romania Cyprus treaty, and removed under the Interest and Royalties Directive where its conditions are met, including a 25% holding for at least two years.

Do I need three companies?

Not always. Many founders are well served by one or two. The third company pays for itself when there is valuable IP, an exit plan, several businesses or significant commercial risk.

Does the IP Box cover trademarks?

No. Trademarks, brand names and other marketing IP are outside the IP Box. Their share of the profit is separated using transfer pricing methods.

What happens if the royalty goes to a company in the BVI?

The British Virgin Islands are on the Cyprus low-tax list for 2026. Royalties paid by a Cyprus company to an associated company there are not deductible for the payer.

Can I run the structure from Germany or Romania?

Only with great care. If the companies are managed from your home country, they can become taxable there. The board and the decisions must really be in Cyprus.

Next steps

You now know more about the three company structure than most people who already have one. The next step is your own map: where your IP is, where your royalties flow and where the 10% would bite.

Sources

• Cyprus Income Tax Law 118(I)/2002 and amending Laws 244(I)/2025 and 245(I)/2025, Cyprus Bar Association legal database: https://www.cylaw.org/
• Cyprus Tax Department, circulars and the 2026 list of low-tax jurisdictions: https://www.mof.gov.cy/mof/tax/taxdep.nsf/index_en/index_en
• PwC Worldwide Tax Summaries, Cyprus, corporate withholding taxes (last reviewed 4 August 2026): https://taxsummaries.pwc.com/cyprus/corporate/withholding-taxes
• Invest Cyprus, Cyprus Tax Guide for Investment, February 2026: https://www.investcyprus.org.cy/wp-content/uploads/2026/04/cyprus-tax-guide-for-investment-feb-2026-lr.pdf
• Council Directive 2003/49/EC (Interest and Royalties Directive): https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32003L0049
• Council Directive 2011/96/EU (Parent-Subsidiary Directive), Articles 3 and 5: https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32011L0096
• Romanian Fiscal Code (Law 227/2015), Articles 224, 229 and 255: https://legislatie.just.ro/Public/DetaliiDocument/171282
• German Income Tax Act, § 43b EStG: https://www.gesetze-im-internet.de/estg/__43b.html
• Council of the EU, EU list of non-cooperative jurisdictions for tax purposes: https://www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions/
• OECD, BEPS Action 5, harmful tax practices and the nexus approach: https://www.oecd.org/en/topics/sub-issues/harmful-tax-practices.html
• German Income Tax Act, § 50a EStG: https://www.gesetze-im-internet.de/estg/__50a.html
• German Income Tax Act, § 50c EStG: https://www.gesetze-im-internet.de/estg/__50c.html
• German Income Tax Act, § 50d EStG: https://www.gesetze-im-internet.de/estg/__50d.html
• German Foreign Tax Act, §§ 1, 6 and 8 AStG: https://www.gesetze-im-internet.de/astg/
• German Fiscal Code, § 10 AO: https://www.gesetze-im-internet.de/ao_1977/__10.html
• PwC Worldwide Tax Summaries, Germany, corporate withholding taxes (last reviewed 30 June 2026): https://taxsummaries.pwc.com/germany/corporate/withholding-taxes
• PwC Worldwide Tax Summaries, Romania, corporate withholding taxes (last reviewed 25 September 2026): https://taxsummaries.pwc.com/romania/corporate/withholding-taxes
• Romanian Fiscal Code, consolidated version, ANAF: https://static.anaf.ro/static/10/Anaf/legislatie/Cod_fiscal_norme_2023.htm

Verified on 4 November 2026.

Cover photo: Limassol Marina in the sun. Photo by A.Savin, Wikimedia Commons, Free Art License, cropped.