The International Economic Relations Directorate of the Ministry of Finance of Greece issued a Circular dated on the 31.03.2016 clarifying the provisions of the Double Tax Treaty between Greece and Cyprus.
Before the issuance of the aforementioned circular, the Greek taxpayer had to pay 10% on dividends from the Cyprus Company in Greece.
However, the Circular clarifies that the “Cypriot withholding tax” should include as well the corporate tax that is payable by Cyprus Companies on their profits.
To illustrate this point, please refer to following example:
- The taxable income of a Cyprus Company, resident in Cyprus, amounts to 100.000 EUR.
- As the effective corporate tax rate in Cyprus is 12.5%, the payable corporate tax amounts to 12.500 EUR.
- If the company proceeded to dividends distribution of 50.000 EUR to a tax resident in Greece, previously the said person would have had to pay 5.000 EUR (as according to the provisions of the Double Tax Treaty, the withholding tax on dividends is 10%.)
- However, following the interpretation provided by the circular, the corporate tax should be taken into account, which means that 12.5% on the profits had already been paid in Cyprus. As a result the Greek taxpayer is exempt from further payments to the Greek tax authorities on the said dividends (as the paid tax exceeds by 2.5% the withholding tax rate on dividends, which is currently 10% according to the provisions of the double tax agreement between the two countries).
- This means that in the aforementioned case the Greek tax resident will be subject to zero taxation on the dividends received from the Cyprus Company