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Greece: Treaty analysis: Greece-Cyprus DTT tax credit mechanism relating to dividend payments


Kalliopi Kalogera

Greece has a broad network of Double Tax Treaties (DTTs) in place, however, only a handful of them (e.g. Albania, Georgia, Uzbekistan) include clauses permitting the tax credit of the corporate tax paid on profits in the country of the distributing entity against the income tax to be paid for dividends in the country of residence of the receiving person (individual or legal entity), among which is the DTT between Greece and Cyprus.

The rule for the avoidance of double taxation introduced in Article 21 of said DTT provides for that income tax to be paid in Greece for the received dividends should be decreased by the total tax payable in Cyprus comprising both of any tax withheld on the dividend payment in Cyprus as well as the Cypriot corporate tax paid on the underlying profits of the Cypriot distributing entity.

The local legislation has in general adopted this position with respect to dividends received from local legal entities by their EU-subsidiaries in case the EU Parent-Subsidiary Directive (as incorporated in the local legislation) does not apply, by further providing for a specific unilateral tax- credit mechanism. However, Greek tax resident individual shareholders cannot equally benefit from such regime due to lack of respective local tax law provisions and mechanism.

Very recently, the Directorate of International Economic Affairs of the Ministry of Finance has circulated a document wherein it is stipulated that the tax-credit provisions of the Greece-Cyprus DTT applies to Greek tax residents (including individuals) receiving ordinary dividends from Cypriot legal entities. Therefore, corporate Cypriot tax paid from the distributing entity may be credited against the Greek income tax arising at the level of the Greek tax resident shareholder from the received dividends (currently set to 15%). Given that this document explicitly specifies that only the corporate tax that is actually paid in Cyprus will be taken into account, the tax sparing clause included in par.3 of Article 21 of said DTT remains non-applicable in the Greek tax practice.

This document may open the way for this treatment to be broadly followed for dividends received from foreign entities established in countries where the DTT agreement in place includes similar provisions by Greek tax resident individual shareholders.

It should, though, be noted, that each distributing structure may still be tested under Greek General Anti-Tax Avoidance rules – according to which the Greek tax authorities may disregard any artificial arrangement and proceed to impose any tax that would have been due without it- resulting to the denial of said tax credit in case the distributing entity lacks business substance (e.g. premises, personnel, business activity etc).

Kalliopi Kalogera (


Tel: +30 210 2886 816


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