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WHO DO CYPRUS DIVIDEND TAXES APPLY TO?
In last week’s article, an overview of the Cyprus’s defense tax was given. As briefly outlined before, Cyprus’s defense tax also, in certain cases, applies to dividends. However, whether or not the dividends are taxed depends on if the income is received by a corporate shareholder or an individual. Since Jan. 1, 2003, dividends have not been taxed in Cyprus, unless they are received by a Cypriot tax resident individual. Payments of dividends to non-residents, whether corporate shareholder or individual, are not taxed.
Note that, for tax purposes, a company is deemed a resident company if it is managed and controlled in Cyprus. A person is considered a resident if they have lived in Cyprus for more than 183 days in the same tax year.
Cyprus holding companies have a major advantage in regards to the fact that there aren’t any withholding taxes on dividends received from other Cyprus resident companies, or by a permanent Cyprus establishment belonging to a non-resident company.
The only exceptions where these cases don’t apply are as follows:
- More than half of the paying companies income are from investments.
- The foreign tax on the subsidiary is much lower than Cyprus’s tax.
In most cases, dividends sent from an EU country, and received by a domestic shareholder, are free from withholding tax. However, if dividends are received from a non-EU country, the rate of the withholding tax will depend on whether or not there is a double taxation treaty between Cyprus and the payee’s country of residence. If there isn’t a double tax treaty, the domestic rate from the payee’s country applies.
Deemed Dividend Distribution
Deemed dividend distribution applies only to companies that have Cyprus tax resident shareholders, who are either physical or legal persons. These provisions don’t apply if a shareholder of a Cyprus company is a Cyprus tax resident, who is also acting as a nominee shareholder and holding shares for foreign persons. Deemed dividend distribution affects international investors only when a Cyprus tax resident company holds another Cyprus tax resident company. Deemed dividend distributions that aren’t exempt are subject to a 15 percent special contribution tax.