dividends from Croatia to Cyprus

[metronic]

hey guys,

I just recently moved to Cyprus and became a non dome here. I was looking at tax treaties since I own a company in Croatia with my friend. I was surprised that Cyprus doesn't have a tax treaty with them but it is what it is. my question is if I am paid dividends from the Croatian company to my Cyprus holding or myself, what kind of taxes apply due to them not having tax treaties?

any help or pointers where to look for info helps

 

[Sols]

As a non-domciled resident, you are exempt from tax on dividends. You will need to pay GESY (social security) which is 2.65% up to 180,000 EUR (4,770 EUR contribution). But that should be the only tax applicable. Lack of tax treaty should not make a difference since the tax burden in Cyprus is zero in any case.

Of course, consult with a tax adviser to be absolutely sure. But that's how the tax rules in general are in Cyprus.

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This is the probably the answer to your question.

 

[metronic]

Sols said:
As a non-domciled resident, you are exempt from tax on dividends. You will need to pay GESY (social security) which is 2.65% up to 180,000 EUR (4,770 EUR contribution). But that should be the only tax applicable. Lack of tax treaty should not make a difference since the tax burden in Cyprus is zero in any case.

Of course, consult with a tax adviser to be absolutely sure. But that's how the tax rules in general are in Cyprus.
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yes, I know I am not worried on my end, I am curious what needs to be paid in Croatia besides corporate and if there is any withholding tax since there is a lack of tax treaty?

 

[CyprusLaw]

metronic said:
yes, I know I am not worried on my end, I am curious what needs to be paid in Croatia besides corporate and if there is any withholding tax since there is a lack of tax treaty?
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Just to clarify - is the Cyprus Co a subsidiary of the Croatian Company? Or are you the direct shareholder of the Croatian company?

If the Cyprus Co is the subsidiary of the Croatian Co then dividends paid by the Croatian Co to the Cyprus Co may qualify for the withholding tax exemption granted under the EU Parent Subsidiary Directive. Such exemption obtained shall eliminate any withholding taxes arising from the distribution of dividends of a subsidiary company to its Parent.

If however you are the direct shareholder, even though as non dom you are exempt from tax and SDC at the Cyprus level, you will need to pay any applicables taxes at Croatia level.

 

[metronic]

CyprusLaw said:
Just to clarify - is the Cyprus Co a subsidiary of the Croatian Company? Or are you the direct shareholder of the Croatian company?

If the Cyprus Co is the subsidiary of the Croatian Co then dividends paid by the Croatian Co to the Cyprus Co may qualify for the withholding tax exemption granted under the EU Parent Subsidiary Directive. Such exemption obtained shall eliminate any withholding taxes arising from the distribution of dividends of a subsidiary company to its Parent.

If however you are the direct shareholder, even though as non dom you are exempt from tax and SDC at the Cyprus level, you will need to pay any applicables taxes at Croatia level.
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no the company is completely separate and doesn't have any links to my Cyprus company. so if I am just the owner and shareholder I am getting hit with the dividend tax in Croatia ?

 

[CyprusLaw]

metronic said:
no the company is completely separate and doesn't have any links to my Cyprus company. so if I am just the owner and shareholder I am getting hit with the dividend tax in Croatia ?
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Correct - I don't know how dividend tax works in Croatia so you would need to check with an advisor in Croatia, however, from a Cyprus law perspective this is the case, no tax/sdc in Cyprus level so it all depends on Croatia.

If the two companies were linked then the parent-subsidiary directive would apply.

 

[metronic]

CyprusLaw said:
Correct - I don't know how dividend tax works in Croatia so you would need to check with an advisor in Croatia, however, from a Cyprus law perspective this is the case, no tax/sdc in Cyprus level so it all depends on Croatia.

If the two companies were linked then the parent-subsidiary directive would apply.
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what if the Cyprus company was the owner of the Croatian one ? meaning the Croatian one would be a subsidiary?

thanks

 

[metronic]

CyprusLaw said:
Correct - I don't know how dividend tax works in Croatia so you would need to check with an advisor in Croatia, however, from a Cyprus law perspective this is the case, no tax/sdc in Cyprus level so it all depends on Croatia.

If the two companies were linked then the parent-subsidiary directive would apply.
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I read that under non treaty regime , 10% is paid on dividends in Croatia

 

[CyprusLaw]

metronic said:
what if the Cyprus company was the owner of the Croatian one ? meaning the Croatian one would be a subsidiary?

thanks
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As both countries are EU Member States the parent-subsidiary directive would kick in and any distribution made by the CroatiaCo to the Cyprus Co would be exempt from dividend withholding tax under the Parent-Subsidiary Directive.

The other solution would be for you to close the Croatia Co since you are a Cyprus non dom and carry out your business from Cyprus Co which would be exempt from dividend sdc - you would only pay the 2.65% for the nhs.

 

[metronic]

CyprusLaw said:
As both countries are EU Member States the parent-subsidiary directive would kick in and any distribution made by the CroatiaCo to the Cyprus Co would be exempt from dividend withholding tax under the Parent-Subsidiary Directive.

The other solution would be for you to close the Croatia Co since you are a Cyprus non dom and carry out your business from Cyprus Co which would be exempt from dividend sdc - you would only pay the 2.65% for the nhs.
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yes I am doing that but the Croatian business is location based sort of so my only option really is to close the current one since it is still in very early stages and open a new holding here and open a new Croatian structure the right way. correct ?

 

[CyprusLaw]

You can keep the current one and bring it in the same structure as the Cyprus Co - i.e. making the croatian co the sole shareholder of the cyprus co

 

[metronic]

CyprusLaw said:
You can keep the current one and bring it in the same structure as the Cyprus Co - i.e. making the croatian co the sole shareholder of the cyprus co
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right but my goal is to get dividends from Croatia to Cyprus not the other way around ?

 

[CyprusLaw]

metronic said:
right but my goal is to get dividends from Croatia to Cyprus not the other way around ?
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The other way around then - Cyprus Co shareholder in Croatian Co - again you have to check the procedure for this on a Croatian level

 

[Jerry1911]

You (or well, your Croatian company) won't pay any WHT as you are a natural person. Croatian CIT Act clearly states in art. 31. par. 4. that natural persons are exempt from paying WHT tax on dividends.

 

[Jerry1911]

You might have to pay personal income tax on dividends as a non resident since there is no DTT between Croatia and Cyprus. Check with your Croatian accountant

 

[lacomaco]

metronic said:
I read that under non treaty regime , 10% is paid on dividends in Croatia
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I think the withholding tax on outgoing dividends from Croatia to an individual who does not reside in a double-tax treaty country is 12% and not 10%

 

[lacomaco]

Jerry1911 said:
You (or well, your Croatian company) won't pay any WHT as you are a natural person. Croatian CIT Act clearly states in art. 31. par. 4. that natural persons are exempt from paying WHT tax on dividends.
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For Croatian tax residents or non-residents also? I am quite surprised as withholding taxes on dividends payable to individuals usually not defined in a CIT but personal income tax laws

 

[Jerry1911]

lacomaco said:
I think the withholding tax on outgoing dividends from Croatia to an individual who does not reside in a double-tax treaty country is 12% and not 10%
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It has been lowered to 10% since 1st of January 2021

Same thing with corporate tax rate for enterprises with revenue lower than 7.5m HRK (~1m EUR)

 

[metronic]

CyprusLaw said:
As both countries are EU Member States the parent-subsidiary directive would kick in and any distribution made by the CroatiaCo to the Cyprus Co would be exempt from dividend withholding tax under the Parent-Subsidiary Directive.

The other solution would be for you to close the Croatia Co since you are a Cyprus non dom and carry out your business from Cyprus Co which would be exempt from dividend sdc - you would only pay the 2.65% for the nhs.
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our main income is coming from US, would a lack of tax treaty between Croatia and US play a role in doing business?