Cyprus has been officially removed from the Portuguese so-called “blacklist”- a list of jurisdictions with privileged tax regimes.
This development has been issued by the Portuguese Ministry of Finance on 8th November 2011, Decree No. 292/2011 and is the result of compliance of both Cyprus and Portugal with the relevant EU Directives.
This development has resulted in a number of positive implications summarized below:
Payments from Portuguese entities to Cyprus entities
Previously such payments were, in most cases, non-deductible. Now, these payments are deductible for Portuguese tax purposes under the normal rules.
Portuguese CFC rules
Previously the application of CFC rules resulted in attribution of undistributed profits of a Cyprus company to the significant Portuguese shareholders.
Consequently, these profits were taxed in Portugal.
In light of the recent changes, however, the CFC rules do not apply with respect to Cyprus companies.
Transfer tax payable by a Cyprus purchasing company of Portuguese property
Previously the transfer tax was set to the increased rate of 8%. Now the standard rate of 5% / 6.5% is applicable on the transfer of property.
Portuguese capital gains tax
Cyprus entities were previously subject to capital gains tax. Now Cyprus entities benefit from the exemption applicable under the normal rules.
Real estate tax payable by Cyprus owners of Portuguese property
Previously the real estate tax was set to the increased rate of 5%. Now the standard rate ranging from 0.2% to 0.8% is applicable.
Interest income and capital gains from registered debt securities
Previously these were both subject to Portuguese withholding tax.
Now they are both generally exempt from Portuguese withholding tax.
Through efficient tax planning, the removal of Cyprus from Portugal’s blacklist of entities with privileged tax regimes has opened up opportunities for Cyprus-Portugal business.
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