The directive intends to estimate the double taxation of dividends received by a parent company located in one member state from its subsidiary located in another
More specifically the Member State of the subsidiary is required to abolish any withholding tax, while the Member State of the parent company is required either to exempt the dividends or to impute the tax already paid in the Member State of the subsidiary against its own tax.
The parent/Subsidiary Directive deals with the tax regime applicable to parent and subsidiary companies of the Member States and eliminates any double taxation of dividends paid by a subsidiary in one Member State to a parent company in another Member State.
A parent/Subsidiary relationship is established where a parent holds 10% or more of the capital of the subsidiary company in question.
The Cyprus legislation is more generous that the EU directive and dividends are usually exempt from taxation. Please see taxation of Dividends.