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Investing in Poland via Cyprus
Poland, as a developing country, has attracted the interest of numerous investors, including multinational companies, real estate funds, private equity funds or otherwise. One of the most popular investment paths into Poland is through Cyprus, for a number of reasons. Most importantly, Cyprus has concluded a most favourable Treaty for the Avoidance of Double Taxation (DTT) with Poland, which, if combined with the investor friendly tax system of Cyprus can infer enhanced benefits to international investors. Taxand Cyprus examines the benefits for investors.
The benefits available under the Cypriot Tax System
With the wide network of double tax treaties concluded, one may consider Cyprus as a 'treaty heaven' jurisdiction. Investing via Cyprus assumes an extensive range of benefits to investors. Most importantly, Cyprus is a low tax jurisdiction with a most favorable tax regime, and a member of the EU. In line with the above, Cyprus offers:
- The low corporate tax rate of 10%, which is the lowest in the E.U.
- The ability to pull profits from foreign subsidiaries with no or very low withholding tax.
- The zero withholding tax for payments to non-resident shareholders, creditors and licensors (when rights are exercised outside Cyprus).
- The fact that no capital gains tax is levied on the disposal of either property situated outside Cyprus or shares in companies assuming that their assets do not include immovable property situated in Cyprus.
- The use of Trusts for inheritance, wealth protection, financial planning, unanimity and other purposes.
The Cyprus - Poland Double Tax Treaty
The current treaty provides for a withholding tax at source on dividend and interest payments of 10% and respectively of 5% on royalty payments. Irrespective of the provisions of the DTT, Cyprus does not impose any withholding taxes (WHT) on the payment of dividends, interest, or royalties (conditional upon the fact that the rights are exercised outside Cyprus) to non resident shareholders, creditors or licensors respectively. As a general principle, gains from the disposal of property are subject to tax only at the level of the alienator, with the exception of immovable property and movable property belonging to a permanent establishment. The general principle extends its application to the gains from the sale ships, aircraft or road vehicles operated in international traffic, or movable property related thereto.
In the case of Poland, double taxation is eliminated by the allowance of an exemption from Polish tax, of income, which may be taxed in Cyprus in accordance with the provisions of the DTT. Notwithstanding the above, a tax credit is allowed with respect to dividend, interest and royalty income derived from Cyprus. Cyprus on the other hand provides for a tax credit with respect to income derived from Poland. Tax sparing credit provisions apply which allow for a credit to be granted in either country in respect of taxes which could have been imposed, but only for the application of favourable incentive legislation.
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