Cyprus: Cyprus and Latvia sign DTA
The details of the first agreement for the avoidance of double taxation (DTA) between Cyprus and Latvia became available in August 2016, providing information on the various applicable tax rates.
The DTA, which is based on the 2010 OECD Model Convention, was signed on May 24 2016 and ratified by both parties on June 3 2016. The agreement is expected to contribute to the further development of the economic relations between Cyprus and Latvia, as well as with other countries.
The main withholding tax rates with respect to dividends, interest and royalties are as follows:
0% withholding tax on dividends if the beneficial owner is a company (other than a partnership), and 10% in all other cases;
0% withholding tax on interest payments made to a company resident in the other contracting state that is the beneficial owner thereof. If the beneficial owner is not the recipient company of the interest then the withholding tax rate will be 10%; and
0% withholding tax on royalty payments made to a company resident in the other contracting state that is the beneficial owner thereof. If the recipient company is not the beneficial owner of the royalty, then the withholding tax rate will be 5%.
Separately, Article 4 of the DTA does not provide for the standard tie-breaker rule for determining the residence of a taxpayer, other than an individual, that is a resident of both states. In this situation, dual residence is resolved by the competent authorities of the two states by mutual agreement.
Article 5 of the agreement on permanent establishments (PEs) provides a nine-month duration criteria that a building site, construction or assembly or installation project, or a connected supervisory or consultancy activity must fulfil in order to constitute a PE.
Although the double tax treaty is based on the OECD 2010 Model Convention, Article 7 of the Cyprus-Latvia DTA is based on the 2008 OECD Model Convention.
Meanwhile, Article 8 on shipping and air transport provides that profits of an enterprise of a state from the operation of ships or aircraft in international traffic are taxable only in that state.
The treaty also includes articles relating to offshore activities and on independent personal services (Article 14) in line with the UN Model (2001). Article 26 (exchange of information) is based on the OECD Model.
The treaty will take effect from January 1 in the year after all legal formalities and ratifications are completed to bring the treaty into force.
Andri Christodoulou (firstname.lastname@example.org)
Eurofast Taxand Cyprus
Tel: +357 22 699 224