Taxation of a Cyprus-resident company

Spain:

Requirements for the exemption of dividends from taxation:

• The direct or indirect shareholding in the entity’s capital or equity must be at least 5%, or the acquisition cost of the shareholding must exceed EUR 20 million.

• The shareholding must have been held continuously for the year preceding the date on which the distributed profit becomes payable or, failing that, must be held thereafter for the time needed to complete that period. For the purpose of calculating the period, account will also be taken of any period during which the shareholding was held continuously by other entities that meet the circumstances referred to in Article 42 of the Commercial Code for forming part of the same group of companies, irrespective of their residence and whether they are required to prepare consolidated annual accounts.

Where the investee entity derives more than 70% of its income from dividends, profit shares or income arising from the transfer of securities representing an interest in the capital or equity of entities, this exemption for such income requires the taxpayer to hold an indirect interest in those entities that meets the requirements set out in this paragraph. The percentage of income referred to will be calculated by reference to the consolidated result for the year where the directly invested entity is the parent of a group under the criteria in Article 42 of the Commercial Code and prepares consolidated annual accounts. However, an indirect interest in second-tier or lower-tier subsidiaries must meet the minimum 5% threshold, unless those subsidiaries meet the circumstances referred to in Article 42 of the Commercial Code for forming part of the same group as the directly invested entity and prepare consolidated financial statements.

The requirement set out in the preceding paragraph does not apply where the taxpayer can demonstrate that the dividends or profit shares received were included in the tax base of the directly or indirectly invested entity as dividends, profit shares or income arising from the transfer of securities representing an interest in the capital or equity of entities, without entitlement to an exemption or double-taxation relief regime.

In addition, where the shareholding is in the capital or equity of entities that are not resident in Spanish territory, the investee entity must have been subject to, and not exempt from, a foreign tax identical or similar in nature to this Tax at a nominal rate of at least 10% in the year in which the distributed or participating profits were obtained, regardless of the application of any exemption, tax credit, reduction or deduction.

Where the non-resident investee entity derives dividends, profit shares or income from the transfer of securities representing an interest in the capital or equity of entities, this exemption for such income requires the requirement laid down in this paragraph to be met at least by the indirectly invested entity.

Cyprus:

Corporate income tax is 12.5% for both resident and non-resident companies.

Cyprus is part of the EU Parent-Subsidiary Directive, which provides for an exemption from withholding tax on dividends paid by an EU subsidiary to its Cypriot corporate parent. The qualifying shareholding threshold is 25%.

Cyprus domestic law provides for a full tax exemption on dividends received by a corporation in Cyprus from foreign shareholdings. The qualifying shareholding threshold is 1%.

The sole exception to this rule concerns dividends from a subsidiary whose activities derive more than 50% of their income from investment income, where that participation income, on which the subsidiary is paying dividends, is taxed at a rate below 5%. Dividends received directly or indirectly from commercial subsidiaries are not treated as participation income.

In summary, the main taxes on companies include:

• Corporate income tax for a Cyprus-resident company: 12.5%.

• Immovable property tax: the rate is determined by the value of the property and may be 2.5%, 3.5% or 4%.

• Value added tax: in most cases, the rate is 15% and it is payable only if turnover from supplies of goods and services in Cyprus exceeds EUR 15,600. However, exceptions provide for a reduced rate of 8% for restaurant businesses and up to 5% for businesses selling pet food, pharmaceuticals, agricultural products, items for people with disabilities, newspapers, books and certain other goods. No VAT is payable by businesses providing postal, financial, insurance or educational services.

• Tax on capital gains in Cyprus (for example, following a sale of real estate): 20%.

• Share capital tax: 0.6%.

• Defence tax: the rate depends on the type of income and may be 2.25%, 10%, 15% or 0%.

• Individuals resident in Cyprus must pay tax on profits, which is levied on all income received by a resident, both inside and outside the country. Residents whose total annual income is below EUR 19,500 are exempt from this tax. In other cases, depending on the amount of income, the tax rate may be 20%, 25% or 30%. Foreign pension income is taxed separately at an additional rate of 5%. The taxable income of resident individuals does not include dividends, health insurance payments, death benefits and certain other social payments.