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Taxation between Portugal and Cyprus

R

ricky

I'm a Premium Offshore Investor
Advance Member
Oct 15, 2012
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#1
Hello,


I am new to the forum and to business with Cyprus so I hope that you will be able to guide me through some rather confusing situations I have.


I have a company in Portugal providing web based services online to various EU/International clients for which I pay 23% VAT to the Portuguese finances. Our server provider who is a Cyprus based company then send me an invoice for services rendered. So here are my questions:

  • As these are two EU companies there should be no VAT payable by either party correct? This is due to the goods supplied between VAT registered traders are exempted with a right to deduct the input VAT (zero-rated) on despatch if they are sent to another Member States to a person who can give his VAT number in another Member State.
  • Do I have to retain 15% of the invoiced sum in Portugal due to DTT (Double Taxation Treaty)? How does this exactly work and can it be regained by either company? Do the Cyprian finances then ask for this back? What I understand is that this is to verify that the Cyprus company pays its Capital Gains Tax of 15%.


I hope that you can clarify these points for me and look forward to your reply.


Ricky
 
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#2
The EU Vat rule is as follows:


When one EU company registered with the VAT of one EU country invoices another EU company which is registered with the VAT of another EU country for services , then VAT should be zero.


When one EU company registered with the VAT of one EU country invoices a retail customer which is situated in another EU country and is not registered with VAT, then VAT must be charged at the rate applicable at the EU country in which the company is registered.
 
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#3
Thank you for the reply Admin.


Do you have any further information with regards to the Double Taxation Treaty between the two countries?


Ricky
 
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#4
Here is a little more information about it: Avoidance of Double Taxation and here is a link as well Cyprus Double Tax Treaties
 
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#5
Hello,


I am still having serious problems with the TAX situation between Portugal and Cyprus. Unfortunately our accountants (Portugal) seem to be lost with this so I hope to find definite answers here.


This still comes down to the fact that Portugal and Cyprus do not have a Double Taxation Treaty. SO I have been told by our accountant (in Portugal) that the Cyprus company who supplies us with server hosting services MUST include in their invoice to us 15% withholding tax to be paid by us to the Portuguese finances? Is this correct? If so, how would this be written in the invoice from the Cyprus company as they (The Cyprus company) have no idea.


I do hope you can assist us here as we don't seem to have any clear cut reason or solution to this problem.


Regards,


Ricky
 
#6
If one Company based in one EU country invoices a customer in another EU country, then vat is Zero provided that the customer is registered for VAT in its home country.
 
#7
Hello Admin,


Thank you for the reply, but this is not a VAT matter.


This has to do with WITHHOLDING TAX. As there is no convention between Portugal and Cyprus for Double Taxation Treaty, there is no exemption for paying Withholding tax in Portugal. This seems to go directly against EU policy and therefore we are trying to find out a away for the Cyprus company not to pay this 15% Withholding Tax.


Basically, what I understand is that this is a way to make sure that the Cyprus company is paying Tax on services to another country and is deductible from the Cyprus company’s final income tax. The problem is that the Cyprus company does not make enough income (After paying their suppliers) to deduct this amount of money, so the money is lost!


DTT (Double Taxation Treaty)


Withholding Tax of 15% for services in Portugal
 
#8
ricky said:
Unfortunately our accountants (Portugal) seem to be lost
Click to expand...
If I were you and my accountants couldn't answer something like this, I would consider getting better accountants.


While this forum clearly states it does not provide advice, it sounds like you are going to use Admin's word as guidance. Even though Admin is no doubt experienced, this is something I would strongly recommend that you discuss with a qualified professional.


Doing something like this wrong costs a lot more than you pay for solid tax and legal advice.
 
#9
Thank you for your comments and sorry for the wrong answer... we are busy at the moment (news will come very soon) so mistakes happen. We have professionals in house, both accountants, attorneys and other consultancies so there is no need to indicate that we don't know what we are doing... the forum is 1 entity where I, you and many other help each other. Our professionals are only available for paid services or existing clients.


Just wanted to clear the air before anyone get things wrong.


As usually, if you have any doubts that this isn't true... we will welcome you in our office in Cyprus:hello:
 
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#10
Hello Zqq. The problem is that this seems to be a very grey area and whilst I am indeed seeking new accounts, I am also trying to understand the extents of the law and it's relation to EU matters. I understand a forum to be a melting pot of ideas and queries, so I am wondering if anyone else has had the same Withholding tax issue and can relay a correct path to take.


The removal of Cyprus from the list of tax havens arises from recognition that, as an EU Member State, it is also subject to the EU system for exchange of information between tax authorities laid down in Directive 77/799/EEC and later substituted by Directive 2011/16/EU (not yet transposed into Portuguese law), and in Directive 2008/55/EC. With this said, there should be a DTT between the two countries and no Withholding tax applied.


Admin, Thank you as always for your replies. I can only imagine how busy you are, so your input is always very much appreciated.


I hope that there is someone in this community who can shed some light on our situation.
 
#12
ricky said:
Thank you for the reply Admin.


Do you have any further information with regards to the Double Taxation Treaty between the two countries?


Ricky
Click to expand...
They are public available actually. Depends on what you need to know and how far you are with your business :)
 
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