Following the removal of Cyprus from the Portuguese “black list”, on 19 November 2012 the representatives of Cyprus and Portugal have concluded and signed a Double Tax Treaty.
The Portuguese Ministry of Finance has removed Cyprus from the country’s “black list” of jurisdictions which are considered to have privileged tax regimes, based on the Decree No. 292/2011, in both countries’ efforts to be in full compliance with relevant EU Directives, such as the EU Directive on mutual assistance and exchange of information in the field of direct taxation
This removal of Cyprus from the black list means that:
- Portuguese CFC Rules do not apply in respect of Cyprus companies, where previously Cyprus companies profit taxed in Portugal
- Payments from Portuguese companies to Cyprus companies are now deductible for Portuguese tax purposes
- Cyprus companies can now benefit from the exemption of Portuguese Capital Gains Tax, where previously Cyprus companies were subject to Portuguese Capital Gains Tax
- Interest income and capital gains from registered debt securities are now generally exempt from Portuguese withholding tax, which previously were subject to Portuguese withholding tax
- The real estate tax payable by Cypriot owners of Portuguese property was reduced to the standard rate – from 0.2% to 0.8% (previously the increased rate of 5% applied)
- The transfer tax payable by Cypriot purchasers of Portuguese property was reduced to the standard rate of 5%-6.5% on the transfer of property (previously the increased rate of 8% applied)
The removal of Cyprus from the “black list” and the singing of the double tax treaty between the two countries provide new opportunities in efficient and effective tax planning in doing cross border business for both Portuguese and Cypriot enterprises.