A tax treaty, which is based on the OECD Model Convention on Income and Capital, has been signed between Cyprus and Portugal in November 2012.
Its signature follows the removal of Cyprus from Portugal’s tax haven “blacklist” and will encourage further investment between the two countries.
The main provisions of the treaty are described below.
Types of tax
The treaty applies to the income tax of both individuals and corporations for both countries. In addition, for Cyprus, the treaty applies to Capital Gains Tax and Special Defence Contribution, while for Portugal it applies to surtaxes on corporate income.
Property rich companies
The sale of shares of companies that are rich in property may be taxed in the country where the property is located.
Withholding tax (WHT)
10% WHT applies to dividends, interest, and royalties. Under the legislation in Cyprus, there is no WHT on interest and dividends paid to non-residents. In cases where WHT on royalties applies, if the rights are used in Cyprus, the WHT can be reduced to 0% under the EU Interest and Royalties Directive. As a result of the relevant EU Directives, under the Portuguese tax legislation, the WHT rate can be reduced to 0%.