The Portuguese Ministry of Finance has removed Cyprus from the country’s ‘black list’ of jurisdictions which are considered to have privileged tax regimes (tax heavens), 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.
The removal of Cyprus from the ‘black list’ provides for new opportunities in efficient and effective tax planning in doing cross border business for both Portuguese and Cypriot enterprises. Some of the implications of this development are summarized below:
|
Post Decree No.292/2011 |
Prior to Decree
No. 292/2011 |
|
| Portuguese CFC Rules | Non-application of CFC rules in respect of Cypriot companies | Application of CFC rules (Cyprus company profits taxed in Portugal) |
|
Payments from Portuguese to Cypriot entities |
Deductible for Portuguese tax purposes | Difficult to achieve deductibility for tax purposes |
| Portuguese capital gains tax | Cypriot companies benefit from the exemption applicable | Cypriot entities fully subject to Portuguese Capital Gains Tax |
| Interest income and capital gains from registered debt securities | Generally exempt from Portuguese withholding tax | Subject to Portuguese withholding tax |
Real estate tax payable by Cypriot owners of Portuguese property |
Standard rate (ranging from 0.2% to 0.8%) | Increased rate of 5% |
| Transfer tax payable by Cypriot purchasers of Portuguese property | Standard rate (of 5%/6.5%) on the transfer of rural or urban property | Increased rate of 8% |