Category: Taxation

Portugal’s allure extends far beyond its stunning landscapes and vibrant culture. In recent years, the country has emerged as a favourite destination for international citizens seeking a tax-advantageous and fulfilling lifestyle. This article explores the key tax benefits and lifestyle factors that make Portugal so attractive.

Portugal’s Tax Advantages

• Favourable Inheritance and Gift Tax: Portugal boasts one of the lowest inheritance and gift tax rates in Europe with no taxes applying to spouses, children, and parents, and 10% applying in other scenarios. Further, if you are a national of another country, you may be able to opt Portugal to govern your succession as a whole. Read here for more information.
• Capital Gains Exemption on Primary Residence: No capital gains tax applies when selling your primary or main residence in Portugal – provided you reinvest in a primary home within 36 months after the sale or 24 months before in another home in Portugal, within the European Union or European Economic Area that has a tax treaty with Portugal. Read here for more information.
• Non-Habitual Resident (NHR) Regime: Introduced to attract foreign talent and investment, Portugal’s NHR program offers significant tax benefits for a ten-year period. The regime has undergone several revisions over the years. Read here for more information.
• Trust Income: Although trusts are not recognized in Portuguese law, taxation still applies. Distributions from trusts are taxed as investment income at a rate of 28% (unless from a blacklisted tax jurisdiction where the rate is 35%). The benefit in taxation of trusts may lie upon liquidating, revocation or extinction, where the following may apply:
  • Liquidation/revocation/extinction for a settlor-beneficiary: When the trust ends and the person who created the trust (settlor) also receives the assets (beneficiary), the proceeds are treated as a capital gain and taxed at a rate of 28% in Portugal (the tax rate increases to 35% when received from a Portuguese blacklisted jurisdiction).
  • Liquidation/revocation/extinction for a non-settlor beneficiary: If someone other than the person who created the trust receives the assets upon termination, it’s not taxed as income. Instead, a 10% stamp duty applies in Portugal, but only to assets physically located in Portugal (real estate incurs an additional 0.8% surtax).
• Life Insurance Bond Benefits: Life insurance bonds in Portugal offer significant tax advantages. Tax rates in Portugal vary between 11.2% and 28% when redeemed – depending on factors such as the holding period. Unpaid gains as well as gains paid upon death may be exempt from personal taxation in Portugal.
• Crypto gains: Holding crypto gains for more than a year may be exempt from personal taxation – with shorter holding periods taxed at 28% (with exception to professional trading activities). Read here for more information.
• Investment Income: Typically, dividends and interest income are subject to a fixed tax rate of 28% (unless the scale rates are less which may then be applied). Note that depending on where these investments are located and depending on whether Portugal has a double taxation agreement in place with the respective jurisdiction, a reduced rate may apply.
• Double Taxation: Portugal boasts a network of close to 80 double taxation agreements with other countries allowing for efficient tax structuring to avoid double taxation on income. Read here for more information.

Lifestyle Benefits in Portugal

Portugal offers a wealth of lifestyle benefits that complement its many tax advantages. The country enjoys a warm, sunny climate with mild winters, especially in the southern regions, making it an ideal destination for those who appreciate pleasant weather year-round. The stunning natural beauty of Portugal, from its pristine beaches and impressive mountains to charming countryside towns, provides endless opportunities for outdoor activities and exploration. Whether you enjoy hiking, surfing, or simply relaxing by the sea, Portugal’s diverse landscapes have something for everyone.

In addition to its natural beauty, Portugal is known for its lower cost of living, which can be a significant advantage for retirees or individuals on a fixed income. Housing, groceries, and dining out are generally more affordable compared to many other European countries. This economic benefit is complemented by Portugal’s relaxed and laid-back culture, offering a slower pace of life that many find appealing. The rich history and vibrant culture of Portugal, with its charming towns, historical sites, and lively traditions, provide a deep well of experiences for those interested in immersing themselves in a new culture.

Furthermore, Portugal has a growing English-speaking community, particularly in popular areas for expats. This can make the transition to living in Portugal smoother for those not fluent in Portuguese, fostering a sense of community and belonging. All these factors combined make Portugal an attractive destination for those seeking a high quality of life with the added benefit of favourable tax conditions.

Sun, Sand & Tax Savings: Why Portugal Should Be Your Next Move

Portugal’s combination of tax breaks and a desirable lifestyle makes it a compelling choice for those seeking a fresh start. However, careful planning and professional guidance are crucial for navigating the legalities of moving and maximising the tax benefits available. Consulting a qualified tax professional and immigration lawyer can ensure a smooth transition and help you leverage Portugal’s offerings to the fullest. Portugal presents a unique opportunity to enjoy a high-quality life while minimising your tax burden. With its favourable tax regime, beautiful scenery, and rich culture, Portugal is a gem waiting to be explored. Reach out to Dixcart Portugal for more information advice.portugal@dixcart.com.

The above is not considered tax advice but rather general information around taxation consequences that may arise in Portugal.

Malta, a sunny island nation in the Mediterranean, has been steadily growing its economy and establishing itself as an attractive destination for businesses, as well as being a wonderful place to live. One of the key incentives offered by the local government to promote investment and economic growth is the Notional Interest Rate Deduction (NIRD). This deduction, introduced in 2017, aims to encourage equity financing and stimulate entrepreneurship. In this article, we will explore the intricacies of Malta’s NIRD, its benefits, eligibility criteria, and how it impacts businesses operating in Malta.

Understanding Notional Interest Rate Deduction

The Notional Interest Rate Deduction, often abbreviated as NIRD, allows companies registered in Malta to deduct a notional interest expense from their taxable income. This deduction effectively reduces the company’s tax liability, providing a significant incentive for businesses to invest and expand their operations in Malta.

The concept behind The Notional Interest Rate Deduction is to provide an incentive for companies to finance their operations through equity rather than debt. By doing so, companies can strengthen their balance sheets, reduce financial risk, and promote long-term sustainability.

Unlike traditional interest expenses, which represent actual borrowing costs, the notional interest expense is a theoretical amount calculated based on the company’s equity investment.

Example:

	No Notional Interest Election	Notional Interest Election	Notional Interest Election
Chargeable Income	100,000	100,000	100,000
Notional Interest	Nil	20,000	60,000
Chargeable Income	100,000	80,000	40,000
Tax thereon at 35%	35,000	28,000	14,000
FTA Allocation	Nil	22,000 (20,000 x 110%)	66,000 (60,000 x 110%)
MTA Allocation	65,000	50,000 (80-28-2)	20,000 (40-14-6)
6/7th Refund	30,000	23,0777	9,231
Tax Leakage	5,000	4,923	4,769

What are the Benefits of Notional Interest Rate Deduction?

The implementation of the NIRD has several benefits for businesses operating in Malta:

Tax Savings: The primary benefit of the NIRD is the reduction of corporate tax liabilities. By deducting a notional interest expense from taxable income, companies can lower their effective tax rate, resulting in significant tax savings.

Encourages Equity Financing: The NIRD encourages businesses to finance their operations through equity rather than debt. This promotes a healthier capital structure, reduces financial risk, and enhances the company’s ability to weather economic downturns.

Stimulates Investment: The availability of the NIRD incentivizes both local and foreign companies to invest in Malta. This influx of investment capital contributes to economic growth, job creation, and the development of key industries.

Supports Entrepreneurship: The NIRD provides a valuable tax incentive for startups and small businesses, making it easier for entrepreneurs to access capital and fuel innovation. This, in turn, fosters a vibrant entrepreneurial ecosystem and drives economic diversification.

What’s the Eligibility Criteria for Notional Interest Rate Deduction?

While the NIRD offers attractive tax benefits, not all companies operating in Malta are eligible to claim this deduction.

To qualify for the NIRD, companies must meet certain criteria:

• Registered in Malta: The company must be registered and resident in Malta for tax purposes.
• Equity Financing: The NIRD is available only for companies that finance their operations through equity rather than debt. Companies must maintain a minimum level of equity capital to be eligible for the deduction.
• Compliance with Substance Requirements: Companies claiming the NIRD must demonstrate substance in Malta, meaning they must have a physical presence, employees, and conduct genuine business activities in the country.
• Compliance with Transfer Pricing Rules: Companies taking advantage of NIRD must comply with Malta’s transfer pricing rules and maintain proper documentation to support their transactions.

Conclusion:

Malta’s Notional Interest Rate Deduction is a valuable tax incentive that promotes equity financing, stimulates investment, and supports entrepreneurship. By allowing companies to deduct a notional interest expense from their taxable income, the NIRD reduces tax liabilities, enhances competitiveness, and fosters economic growth.

As Malta continues to position itself as a leading business destination, the NIRD plays a crucial role in attracting investment, driving innovation, and building a sustainable economy for the future.

Additional Benefits Enjoyed by Maltese Companies

Malta does not levy withholding taxes on outbound dividends, interest, royalties and liquidation proceeds.

Maltese holding companies also benefit from the application of all EU directives as well as Malta’s extensive network of double taxation agreements.

Dixcart in Malta

The Dixcart office in Malta has a wealth of experience across financial services and offers legal and regulatory compliance insight. Our team of qualified Accountants and Lawyers are available to set up structures and help to manage them efficiently.

Additional Information

For further information about Maltese companies matters please contact Jonathan Vassallo, at the Dixcart office in Malta: advice.malta@dixcart.com. Alternatively, please speak to your usual Dixcart contact.

Portugal has emerged as a popular destination for expats and retirees, enticing with its sunshine, beaches, and relaxed lifestyle. But before packing your bags, understanding the personal tax landscape is crucial – particularly before making the move to Portugal. This article explores the key personal tax consequences you need to consider when relocating to Portugal.

Resident Versus Non-Resident:

Your tax status significantly impacts on your tax obligations.

Residents, defined as staying in Portugal for over 183 days, or regardless of spending any days maintains a habitual residence in Portugal during any day, are taxed on their worldwide income.

In contrast, non-residents are only taxed on income sourced from Portugal.

Tax Rates:

Residents face progressive tax rates, which range from 12.5% to 48% for 2025, depending on their income tax bracket (see here for marginal tax rates) – with a possible additional solidarity rate of 2,5% (for taxable income over €80,000 up to €250,000 ) or 5% (if over € 250,000.00 taxable income). Non-residents encounter a flat rate of 25% on most income types and 28% on rental income. However, special regimes such as the Non-Habitual Resident (NHR) programme offer reduced rates for eligible individuals.

Income Categories:

Income in Portugal is categorized, with each category potentially subject to different tax rates. Common categories include:

• Employment income: Residents are taxed at progressive rates (up to 48% with surplus tax of 2,5% or 5%, when applicable), while non-residents are subject to a flat rate.
• Business income: Taxation varies depending on business structure and residency status. In addition, international tax planning may be required for income earned outside of Portugal.
• House Rental income: Generally taxed at 25% for residents and non-residents, with potential reductions for long-term contracts.
  • More than 5 and less than 10 years – taxed at 15%
  • More than 10 and less than 20 – taxed at 10%
  • Over 20 years – taxed at 5%
  • See here for more information on property related taxes.
• Investment income: Dividends and interest are usually taxed at 28%, but individuals under the NHR programme may benefit from personal tax exemptions. Capital gains are taxed at rates ranging from 28% to 35% or other rates depending on the source of the capital gain.
• Going solo in Portugal – Self-employed individuals may be subject to unique tax assessment. Read here for more details.

Deductions and Allowances:

Portugal offers various deductions and allowances to reduce your tax burden. These include expenses related to:

• Health
• Education
• Mortgage interest
• Pension contributions
• Charitable donations
• Other expenses – such as rent, VAT on food, car repairs, etc

In Portugal, residents rely on their “Número de Identificação Fiscal” (NIF), a unique 9-digit tax identification number assigned to both individuals and companies. This number serves as your key for tax purposes and is required for financial transactions.

Social Security Contributions:

A frequently overlooked aspect of Portuguese taxes is social security contributions. Both residents and non-residents contribute, with rates varying based on income and employment status. These contributions unlock valuable social benefits, including; healthcare, unemployment benefits, parental leave, and pensions. Understanding your specific contribution requirements and potential benefits is crucial for informed financial planning in Portugal Read here for more details.

Non-Habitual Resident (NHR) Programme:

This attractive programme offers significant tax benefits for qualifying individuals. Read here for more information.

Tax Filing (IRS Return)

Filing of taxes is of paramount importance and timing is everything. Consulting with your accountant ahead of time and maintaining key records are key to ensuring penalties are avoided and non-compliance in Portugal. An annual return is required to be submitted for income relating to the preceding tax year and other information relevant to the Portuguese tax authorities. Note that the tax year in Portugal runs in line with the calendar year – January to December. The period for submission of the IRS return is from 1 April to 30 June  – however, individuals are encouraged to prepare before this time to ensure submissions are made within the respective timeframe.

Seeking Professional Advice:

Navigating Portugal’s tax system can be complex. Consulting a qualified professional, familiar with the Portuguese tax system and your specific situation is highly recommended. They can guide you through the intricacies of the system, ensuring compliance and potentially maximizing your tax benefits.

Remember:

This article provides a general overview and should not be considered as personalised tax advice. Individual circumstances and specific tax situations may require further analysis by a qualified professional.

By understanding the personal tax consequences in Portugal, you can make informed decisions and approach your move with greater confidence. Remember, proper planning and professional guidance can ensure a smooth transition and help you optimise your tax position in this beautiful country.

Please do reach out to Dixcart Portugal for more information: advice.portugal@dixcart.com..com.

Portugal’s sunshine and relaxed lifestyle attract many aspiring entrepreneurs. However, before plunging into self-employment, understanding the unique tax landscape is crucial. This article sheds light on personal tax implications and the ‘simplified regime’, helping you to reach the right decision for you.

Tax Fundamentals

• Residents: Pay progressive income tax on worldwide income (12.5% – 48% – plus a possible additional surplus tax of 2,5% (taxable income over €80,000 up to €250,000) or 5% (taxable income exceeding €250,000).
• Non-Residents: Pay a flat 25% on Portuguese-source income.
• Social Security: Contributions of 21.4% and 25,2% based on profession and chosen regime.

Enter the Simplified Regime

This attractive option caters for self-employed individuals with specific conditions:

• Annual turnover: Under €200,000 of income.
• Business activities: Listed in the regime’s allowed activities list.

How it Works

• Tax Rates: Depending on the nature of the activity, the income subject to taxation is reduced by specific percentages. The income subject to taxation for the sale of goods and products is 15%, over professional services is 75%, for short term rental is 35%, among other rates. This taxable income is then taxed at 20% under the NHR, or otherwise according to the progressive tax tables. Please note that expenses related to the activity must be registered on the tax office website and validated, to benefit from the percentages detailed above.
• Basic example: Product sales of €30,000 received by an NHR Portuguese tax resident. €30,000 @ 15% = €4,500 taxable income. Tax due to the Portuguese tax authorities: €4,500 @ 20% = €900.
• Reduced Burden: Less administrative complexity compared to the regular regime.

Tax Filing: How and When

Tax filing in Portugal is an essential part of being self-employed. The process for those under the Simplified Regime is relatively straightforward. Annual tax returns must be submitted electronically through the Portal das Finanças, the official tax portal of the Portuguese Tax and Customs Authority. The deadline for filing your personal income tax return (IRS) is the 30th of June of the year following the tax year. For example, income earned during the 2025 tax year (1 January to 31 December 2025) must be reported by 30 June 2026. It’s crucial to adhere to this deadline to avoid penalties. Additionally, if you are registered for VAT, you will need to file quarterly VAT returns. You will also be required to make monthly Social Security contributions, though there is a one-year exemption at the beginning of your self-employment.

Considerations

• Not for Everyone: Registering as self-employed may not be suitable for all professions or high-earning individuals – consult with a professional.
• Record Keeping: Maintain accurate income and expense records for compliance.
• Deadlines: Adhere to payment deadlines to avoid penalties.
• Social Security: Contributions remain mandatory under the simplified regime.
• Seek Advice: Consulting a tax advisor is crucial for eligibility assessment and maximizing benefits.

Beyond Taxes – Other Considerations

• NIF: Obtain your Tax Identification Number (NIF) for financial transactions and tax purposes.
• Health Insurance: Explore private health insurance options as social security coverage might not be comprehensive.
• Accounting Support: Consider professional accounting assistance for managing finances and tax compliance.

Remember

Self-employment in Portugal offers exciting opportunities, but understanding the tax system is essential. Research diligently, stay informed, and seek professional guidance to navigate the simplified regime and optimise your entrepreneurial journey. By planning effectively, you can embrace the sunshine and success with peace of mind.

Additional Information

For further information on the self-employment taxes and the simplified regime in Portugal, please do not hesitate to contact the Dixcart Portugal office: advice.portugal@dixcart.com. Our team is ready to assist you with any questions or concerns regarding this topic.sist you with any questions or concerns regarding this topic.

Portugal’s welcoming charm attracts many individuals, from expats to retirees, as well as entrepreneurs. While enjoying the sunshine and beaches, understanding Portugal’s social security system and your contribution responsibilities is crucial. This article demystifies social security contributions in Portugal for individuals, helping you navigate the system with confidence.

Who Contributes?

Both employed individuals and self-employed individuals contribute to Portugal’s social security system. The contribution rates and methods differ slightly based on your employment status.

Employee Contributions

• Rate: Generally, 11% of your gross salary is automatically deducted by your employer (note that your employer contributes 23.75%).
• Coverage: Provides access to healthcare, unemployment benefits, pensions, and other social benefits.

Self-Employed Contributions

• Rate: Typically ranges from 21.4% to 35%, depending on your profession and chosen contribution regime.
• On a quarterly basis a Social Security declaration must be submitted which declares the revenue of the previous quarter. Based on this amount, the Social Security contribution is calculated.
• Method: Contributions are paid monthly through designated channels such as Multibanco, ATMs or online banking.
• Coverage: Similar to employee contributions, offering access to various social benefits.

Special Cases

• Voluntary Social Insurance: Individuals not automatically covered can make voluntary contributions to gain access to social benefits.

Remember and Contact Information

Contribution rates may change annually, based on government regulations.

Work place insurance may be required for occupational accidents, depending on your profession.

Deadlines for self-employed contributions must be adhered to, in order to avoid penalties.

Please reach out to Dixcart Portugal for more information: advice.portugal@dixcart.com.

Cyprus and The Netherlands Double Tax Treaty

For the first time in the history of the Republic of Cyprus and The Kingdom of The Netherlands, a Double Tax Treaty came into force on 30^th June 2023 and its provisions are applicable as from 1 January 2024 onwards.

This article updates our note issued in June 2021, with regards to the execution of a Double Tax Treaty, on 1^st June 2021.

Main provisions of the Double Tax Treaty

The Treaty is based on the OECD Model Convention for the Elimination of Double Taxation on Income and on Capital and incorporates all the minimum standards of the Actions against Base Erosion and Profit Shifting (BEPS) concerning bilateral agreements.  

Withholding Tax Rates

Dividends – 0%

There is no withholding tax (WHT) on dividends if the recipient/beneficial owner is:

• a company that holds at least 5% of the capital of the company paying the dividends throughout a 365 day period or
• a recognized pension fund which is generally exempt under the corporate income tax law of Cyprus

The WHT in all other cases shall not exceed 15% of the gross amount of dividends.

Interest – 0%

There is no withholding tax on payments of interest provided that the recipient is the beneficial owner of the income.

Royalties – 0%

There is no withholding tax on payments of royalties provided that the recipient is the beneficial owner of the income.

Capital Gains

Capital gains arising from the disposal of shares are taxed exclusively in the country of residence of the alienator.

Certain exemptions apply.

The below exemptions apply:

1. Capital gains arising from the disposal of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State, may be taxed in that other State.
2. Capital gains arising from the disposal of shares or comparable interests deriving more than 50% of their value directly or indirectly from certain offshore right/property relating to exploration of the seabed or subsoil or their natural resources located in the other Contracting State, may be taxed in that other State.

Principal Purpose Test (PPT)

The DTT incorporates the OECD/G20 Base Erosion and Profit Shifting (BEPS) project Action 6

PPT, which is a minimum standard under the BEPS project. The PPT provides that a DTT benefit shall not be granted, under conditions, if obtaining that benefit was one of the principal purposes of an arrangement or transaction.

Additional Information

If you require further information as to how the DTT between Cyprus and the Netherlands could be of benefit please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com or your usual Dixcart contact.

Introduction:

In a highly anticipated announcement, Chancellor Jeremy Hunt presented the Autumn Budget 2023 in the House of Commons on 22 November 2023, revealing a set of measures aimed at fostering economic growth and stimulating business investment.

The budget, comprising “110 growth measures,” outlines a strategic plan to boost the UK economy by £20 billion annually. This article provides a comprehensive summary of the key tax and related measures introduced in the Autumn Budget.

Tax Measures:

1. Class 1 Employees NI Reduction (From January 2024):

• A significant move to stimulate income, the budget proposes a 2% reduction in Class 1 employees’ National Insurance contributions, effective from January 2024.

2. Self-Employed and Class 4 NI Adjustments (From April 2024):

• The Autumn Budget abolishes Class 2 National Insurance for the self-employed and implements a 1% reduction in Class 4 National Insurance from April 2024, providing relief for independent workers.

3. National Living Wage Increase (From April 2024):

• In a commitment to improving workers’ livelihoods, the National Living Wage is set to increase by a substantial 9.8%, reaching £11.44 per hour from April 2024.

4. Capital Allowances Full Expensing Permanent:

• A boost for businesses, the budget makes the full expensing of Capital Allowances permanent, allowing companies to deduct expenditure on new equipment and machinery from profits.

5. R&D Tax Credit Schemes Merger (From April 2024):

• The Research and Development (R&D) tax credit schemes are set to merge, with a reduction in the rate for loss-making businesses to 19%, and a lowered intensity threshold for loss-making SMEs to 30%.

6. Extension of Investment Zones and Freeports Incentives:

• To encourage investment, the budget extends incentives for Investment Zones and Freeports, fostering economic activity in designated areas.

7. Pensions Triple Lock (From April 2024):

• A significant commitment to pensioners, the basic state pension will increase by 8.5% to £221.20 per week from April 2024.

8. Business Rate Discount Extension:

• The 75% discount on business rates for retail, hospitality, and leisure companies is extended for another year, providing crucial support to sectors impacted by the economic challenges.

9. Freeze on Small Businesses Rates Multiplier:

• Recognising the challenges faced by small businesses, the budget freezes the small business rates multiplier for a year.

10. Universal Credit and Benefit Increase (From April 2024):

• A boost for individuals and families, Universal Credit and other benefits are set to increase by 6.7% from April 2024.

11. Alcohol Duty Freeze (Until August 2024):

• In a move to support consumers and businesses in the alcohol industry, the budget freezes alcohol duty until 1 August 2024.

12. Making Tax Digital (MTD) Simplification:

• The budget introduces changes to simplify the design of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA), aiming to streamline tax processes for businesses.

Conclusion:

As the United Kingdom stands at the threshold of a new economic era, the Autumn Budget 2023 emerges as a blueprint for resilience and growth. Chancellor Jeremy Hunt’s unveiling of “110 growth measures” signifies a commitment to rejuvenating the economy and bolstering business confidence.

If you would like any further information regarding the new measures outlined above, please don’t hesitate to contact your usual Dixcart UK contact or enquire at advice.uk@dixcart.com

As part of the action plan, launched by the Cyprus government to attract foreign businesses to establish or expand their activities in Cyprus, there have been new amendments in 2023 to the Cyprus Income Tax Law, regarding the 50% and the 20% tax exemptions for first time employment in Cyprus.

This article outlines the amended income tax exemptions.

What are the Amended Income Exemptions for Cyprus Tax Residents?

• 50% income tax exemption

This applies for first time employment in Cyprus, which commenced on or after 1st of January 2022, with remuneration exceeding EUR 55,000 per annum.

Individuals must not have been a resident of Cyprus, for a period of at least 15 consecutive tax years, immediately prior to the commencement of their employment in Cyprus. For each individual, the exemption will apply once in their lifetime for a period of 17 years.

Subject to certain conditions, individuals whose employment commenced prior to 1 January 2022 may also be eligible to transition into the amended 50% exemption.

• 20% income tax exemption

This applies for first time employment in Cyprus, which commenced on or after the 26 July 2022, and relates to remuneration up to a maximum exemption of EUR 8,550 per annum.

Individuals, immediately prior to the commencement of employment in Cyprus must not have been a resident of Cyprus for a period of at least three consecutive tax years and must have been employed outside Cyprus by a non-resident employer. The exemption applies for a period of seven years, starting from the tax year following the tax year of commencement of employment.

Individuals granted the 50% exemption detailed above will not be eligible for this exemption.

• Previous 50% or 20% exemptions

Individuals that do not meet the conditions to transition to the new 50% exemption, but who were eligible to benefit under the previous 50% or 20% exemptions, may continue to benefit from the previous exemptions, for the remaining period of their entitlement.

The previous exemptions were available for ten years (50% exemption), or five years (20% exemption), respectively, for each individual.

Get in Touch To find out more in income exemptions get in touch with our experts at Dixcart Cyprus advice.cyprus@dixcart.com

As a response to the sanctions placed on Russia, Russia signed, on the 8^th of August 2023, a decree suspending (not abolishing) the double tax treaties with multiple ‘unfriendly’ countries including Cyprus.

According to the official decree, the suspension of DTT’s is justified by Russia’s need to respond to ‘unfriendly actions’ taken by these nations against the Russian Federation, its citizens, and legal entities, in connection with the war in Ukraine.

What does this mean for International Taxation?

The suspension of such agreements in full or in part will inevitably entail not only an increase in the tax burden due to double taxation of the same income, but will also have a major impact on reporting.

The decree halts the application of key provisions in approximately half of Russia’s DTT’s.

The suspension pertains to the following provisions:

• Taxation of dividends, interest, royalties, income from permanent establishments, capital gains, employment earnings, and miscellaneous income.
• Provisions related to property taxation.
• Non-discrimination clauses.
• Limitation of benefits provisions stipulated in several treaties, namely: Sweden, Luxembourg, UK, Switzerland, Cyprus, Lithuania, Austria, and Malta.
• Provisions involving mutual assistance in tax collection for agreements with Belgium, Norway, Cyprus, Austria, and Japan.

From a Cyprus perspective

Cyprus Minister of Finance will continue to honour the Tax Treaty with Russia until further notice.

The suspension of the treaty from Russia’s side will have some tax implications for Cyprus registered companies that receive income from Russian entities. The tax applied on interest, which is deducted at source, will increase from 15% to 20%. As for royalty income, tax applied will rise from 0% to 20%, whereas the tax deducted at source for dividend income, will remain at 15%, as it was before.

However, as announced by the Minister of Finance, the non-application of the Double Taxation Avoidance Agreement’s provisions, might not have further significant consequences for Cyprus, as the existing sanctions and restrictions have already impacted significantly on the economic relations between the two countries.

For additional information, please contact: Katrien De Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

The data contained within this Information Note is for general information only. No responsibility can be accepted for inaccuracies.