Double Tax Treaty: Cyprus & Greece - Reduced Taxation On Dividends From Cyprus Companies To Greek Residents
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% (recently increased to 15%) in Greece on dividends received from the Cyprus Company.
However, the Circular makes it explicit that the Cypriot corporate tax i.e. the corporate tax that is payable by Cyprus Companies on their profits, can be credited against the Greek tax on dividends received.
As an illustration for the tax savings involved, please refer to following example:
Scenario:
- The net taxable income of a Cyprus Company amounts to €200.000.
- Given that the effective corporate tax rate in Cyprus is 12.5%, the payable corporate tax amounts to €25.000.
- If the Cyprus company declares a dividend distribution of €100.000 to a tax resident in Greece, previously this person would have had to pay €15.000 (15% Greek tax on dividends).
- However, following the clarification given by the circular, the corporate tax paid by the Cyprus company should be taken into account and credited against the Greek tax on dividends.
- This means that 12.5% tax on the profits already paid in Cyprus, i.e. the amount of €25.000, must be deducted from the payable tax. As a result, the Greek taxpayer is liable to pay to the Greek tax authorities only 2.5% tax on the above mentioned dividends being the difference of Greek tax 15% minus the Cypriot corporate tax of 12.5%.
This means that in the aforementioned scenario the Greek tax resident will have to pay only €2.500 tax on the dividends received from the Cyprus Company.
For further information, please contact Ms Tonia Antoniou.
