On the 19th of November 2012 a double tax treaty and protocol have been signed between Cyprus and Portugal. The signing of the tax treaty together with the removal of Cyprus from the Portuguese “black list” (in November 2011) of jurisdictions with privileged tax regimes is expected to encourage investments between the two countries and will effectively reduce Portuguese withholding taxes.
The treaty will enter into force 30 days after the completion of the procedure through which the parties exchange notification of ratification and shall take effect on the 1st January following such date.
Below are some of the most important provisions of the treaty:
• It applies to personal income tax as well as corporate income tax for both States. Furthermore, in the case of Portugal, the treaty applies to surtaxes on corporate income, whilst in the case of Cyprus the treaty applies to Special Defence Contribution and Capital Gains Tax.
• The withholding tax rate on dividends, interest and royalties provided for by the treaty is 10%.
• The sale of shares in property rich companies may be taxed in the State in which the property is located.
• The withholding tax rates can be reduced to 0% under the provisions of domestic Portuguese tax legislation interposed as a result of the relevant EU directives. Under Cypriot legislation there is no withholding tax on dividends and interest paid to non-residents and where withholding tax on royalties applies, if rights are used in Cyprus, such withholding tax can be reduced to 0% under the EU Interest and Royalties Directive.
