Double TAX Treaty: Cyprus & Greece -Reduced taxation on dividends from Cyprus companies

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On 31 March 2016, the International Economic Relations Directorate of the Ministry of Finance of Greece has issued a Circular, clarifying the provisions of the Double Tax Treaty between Cyprus and Greece.

What was in existence before the issuance of the aforementioned circular is that the Greek taxpayer had to pay 10% in Greece on dividends received from the Cyprus Company.

However, the Circular makes it explicit that the “Cypriot withholding tax’, also includes the corporate tax that is payable by Cyprus Companies on their profits.

As an illustration for the tax savings involved, please refer to following example:

Scenario:

  • The taxable income of a Cyprus Company amounts to €100.000.
  • Given that the effective corporate tax rate in Cyprus is 12.5%, the payable corporate tax amounts to €12.500.
  • If the Cyprus company declares a dividends distribution of €60.000 to a tax resident in Greece, previously this person would have had to pay 6.000 (as according to the provisions of the Double Tax Treaty, the withholding tax on dividends is 10%.)
  • However, following the clarification given by the circular, the corporate tax paid by the Cyprus Company, should be taken into account.
  • This means that 12.5% tax on the profits already paid in Cyprus, of €12.500 must be taken into account.
  • As a result the Greek taxpayer is exempt from further payments to the Greek tax authorities on the above mentioned dividends (as the paid tax of 12.5% in Cyprus, exceeds by 2.5% the withholding tax rate on dividends, which is currently 10% according to the provisions of the double tax agreement between Cyprus and Greece).
  • This means that in the aforementioned scenario the Greek tax resident will be subject to zero taxation on the dividends received from the Cyprus Company

Disclaimer
This article contains general information only and none of FRS Audit Services Ltd staff , directors ,and members is by way of this communication ,rendering any professional advice or service.