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Eylem Philippou |
To enhance its position as a financial business centre and to attract more international business, Cyprus has recently signed two double tax treaties with Spain and Portugal. These tax treaties also serve to maintain and strengthen its economic and commercial ties with other countries. The double tax treaty signed with Portugal on November 19 2012 is a step further in bilateral relations between the two countries, especially following Cyprus's removal from Portugal's blacklist of jurisdictions back in 2011.
The new treaty is based on OECD Model Convention, with the withholding tax rate set for dividends, interest and royalties at 10%. Gains arising from the alienation of shares held in property rich companies may be taxed in the state in which the property is located.
The signing of the treaty, as well as the removal of Cyprus from Portugal's blacklist, is expected to increase investments between the two countries. Now Portugal can leverage Cyprus as a gateway to Russia and ex-Soviet Union countries where Cyprus already has favourable treaties in place. Cyprus can also leverage Portugal as a gateway to enter into South American countries.
Cyprus also recently signed a treaty with Spain on February 14 2013. Again the treaty is based on the OECD Model Convention, including the latest provisions on exchange of information (art. 26). The main provisions of the treaty are as follows:
The withholding tax on dividends is 5%; No withholding tax on interest; No withholding tax on royalties; and Gains arising from the alienation of shares held in property rich companies may be taxed in the state in which the property is located.
With the signing of this treaty, Cyprus is also expected to be removed from the Spanish blacklist in the near feature.
Both treaties are expected to enter into force once the latter ratification is completed and will be applicable from January 1 of the calendar year following the year in which it entered into force.
It is important to mention that, irrespective of the treaty provisions, Cyprus does not impose withholding taxes on payments made to non-residents on dividends, interest and royalties (for royalties if the rights exercised outside of Cyprus). Gains from securities are exempt from taxation, as well as the gains from immovable property situated outside of Cyprus. In addition, tax sparing credit provisions are included in Cyprus's domestic legislation, which allows relief from double taxation. Multinationals with operations in Cyprus and Portugal or Spain stand to benefit.
Eylem Philippou (eylem.philippou@eurofast.eu)
Eurofast Taxand
Tel: +357 22 699 222
Website: www.eurofast.eu
