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Georgia: Cyprus – Georgia tax treaty enters into force

Nicolaou
Pushkaryova

Christiana Nicolaou

Anna Pushkaryova

On May 13 2015 the finance ministers of Cyprus and Georgia signed a double tax treaty (DTT) in Tbilisi during the 24th annual meeting of the European Bank of Reconstruction and Development (EBRD).

This is the first such agreement concluded between the two countries and is providing promising ground towards the strengthening of economic relations between the two nations.

The agreement was ratified by Cyprus and published in the Official Gazette of the Republic on May 29 2015. According to an update by the Cyprus Finance Ministry, it has entered into force on January 4 2016. The treaty provisions with respect to the tax clauses will have effect on or after the following January 1.

The signed treaty is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital.

Permanent establishment

Its definition as included in the treaty is in line with the definition provided by the model convention and is considered to include a building site, construction, or installation project, or any supervisory activities in connection with such site or project with duration exceeding nine months.

Withholding tax rates

The withholding tax rates for dividends, interest and royalties payments have all been set at 0%.

Capital gains tax

Capital gains derived by a resident of one country from the disposal of immovable property located in the other country may be taxed in that other country where the property is located.

Capital gains arising from the disposal of shares are taxable only in the country in which the seller is a tax resident.

Consequently, Cyprus retains the exclusive right to impose tax on disposal proceeds by Cyprus tax residents of shares in Georgian companies, including Georgian companies holding immovable property located in Georgia, and vice versa.

This treaty further expands the tax treaty networks of both countries. Moreover, since the tax treaty allows for zero withholding tax on dividends, interest and royalty payments, it will encourage inbound investments into Georgia and effectively minimise Georgian domestic withholding taxes.

Conclusively, the agreement creates favourable conditions for the enhancement of economic relations between Georgia and Cyprus and the initiation of new investment projects.

Christiana Nicolaou (christiana.nicolaou@eurofast.eu) and Anna Pushkaryova (anna.pushkaryova@eurofast.eu)

Eurofast Cyprus / Eurofast Georgia

Tel: + 357 22 699 222 and +995 595 100 517

Website: www.eurofast.eu

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