Impuesto Cero sobre Dividendos Recibidos por un Residente Fiscal de Grecia de una Empresa Chipriota

In an era where cross-border investment and business activity is thriving, Greek entrepreneurs and investors who choose to invest in Cypriot companies, or to conduct their business through a Cyprus company, enjoy a significant tax advantage. This is due both to Cyprus's low corporate tax rate of 15% — one of the lowest in the European Union — and the favourable Double Tax Treaty between Greece and Cyprus (the "Greece-Cyprus DTT").

This article examines the regulatory framework and the tax benefits provided by the Greece-Cyprus DTT, focusing specifically on the tax treatment of dividends received by Greek tax residents from Cypriot companies, which, as analysed below, are effectively fully exempt from any taxation in Greece.

Regulatory Framework

Taxation of Dividends from Abroad:

Under Greek Law 4646/2019, dividends received by a Greek tax resident from foreign companies (including Cypriot companies) are subject to a tax rate of 5%, and the individual beneficiaries are required to declare such dividends in their annual tax return.

The Double Tax Treaty Between Cyprus and Greece (Greece-Cyprus DTT):

According to Article 9 of the Greece-Cyprus DTT, dividends received by an individual who is a Greek tax resident may be taxed in both Greece and Cyprus.

Furthermore, Article 21 of the Greece-Cyprus DTT, through which double taxation is avoided, provides that any tax (whether corporate or on dividends) levied under Cyprus tax law on dividends received by a Greek tax resident from a Cypriot company shall be granted as a credit against the Greek tax imposed on those dividends.

In other words, dividend income received by a Greek tax resident from a Cypriot company may be taxed in both Cyprus and Greece; however, under the Greece-Cyprus DTT, the avoidance of double taxation is achieved through the credit method, taking into account both the Cyprus withholding tax imposed on dividends in Cyprus and the corporate tax levied on the profits of the Cypriot company.

The above was confirmed by the official interpretation of the Greece-Cyprus DTT issued by the Directorate of International Economic Relations of Greece, dated 31 March 2016 (reference: DOS A 1051902 EX 2016), which expressly states that the corporate tax levied on the profits of the Cypriot company (15%) as well as the withholding tax imposed in Cyprus on dividends (0%) must be credited against the Greek dividend tax (5%).

As a result of this credit mechanism, and given that the corporate tax in Cyprus is 15%, dividends received by a Greek tax resident from a Cypriot company are effectively exempt from taxation in Greece (i.e., the 5% Greek dividend tax is fully offset).

Practical Example

Suppose a Greek tax resident holds 100% of the shares of a Cypriot company. The company records pre-tax profits of EUR 100,000 for the year 2026. Cypriot companies are taxed at a corporate income tax rate of 15%, resulting in a corporate tax liability of: EUR 100,000 x 15% = EUR 15,000. Accordingly, the company's after-tax profits amount to EUR 85,000.

Assume the Cypriot company decides to distribute the entirety of its after-tax profits as dividends to its shareholder. The shareholder therefore receives EUR 85,000 in dividends. Under Greek tax law, this amount would be subject to a 5% dividend tax. Therefore, the Greek tax would be: EUR 85,000 x 5% = EUR 4,250.

However, with the credit of the Cyprus corporate tax amounting to EUR 15,000, the shareholder has no obligation to pay the EUR 4,250 in Greece.

Conclusion

In today's environment where international business and investment activity is flourishing, the Double Tax Treaty between Cyprus and Greece serves as a key tool for tax efficiency and the protection of investors and entrepreneurs. The analysis of the tax treatment of dividends received by Greek tax residents from Cypriot companies reveals a significant tax advantage: the effective exemption from Greek taxation through the credit method for tax already paid in Cyprus.

At Philippou Law Firm, we specialise in Corporate and Tax Law, providing services related to the incorporation, management, and tax planning of Cyprus companies. With in-depth knowledge of the international and local tax regulatory framework, we are here to guide you at every step of your tax planning, ensuring efficiency and compliance with tax legislation.