During 2017 and the first quarter of 2018, various developments have taken place in Cyprus as regards double tax agreements (DTAs), with a number of new DTAs, protocols and amending protocols being signed and coming into force.
The list of countries with which Cyprus maintains DTAs stands at 63, which is a substantial number for an island as small as Cyprus.
Specifically and most recently, new DTAs have been signed with Saudi Arabia (on January 3 2018) and the UK (on March 22 2018). Both treaties are expected to enter into force in 2019. The beginning of 2018 marked the entry into force of DTAs signed earlier with Barbados, Iran and Jersey.
New double tax treaty with the UK
The new DTA which was signed between the UK and Cyprus, replaces the existing DTA between the two countries that had been in effect since 1975 (as amended in 1980). The new DTA provides for the following:
- No withholding tax on dividends, with the exception of dividends that are paid out of profits resulting from investment vehicles which distribute most of their income annually and whose income arises from immovable property exempt from tax;
- No withholding tax on interest and royalties, provided that such payments are considered to be arm's-length transactions;
- Capital gains tax arising on the sale of immovable property (directly or indirectly) is paid in the country where the property is situated; and
- Tax on pensions is paid in the country where an individual is considered to be a tax resident (certain exemptions apply).
The new DTA also includes a limitation of benefits provision/principle purpose test in accordance with the minimum standards of the BEPS project.
DTA with Saudi Arabia
The DTA signed between Cyprus and Saudi Arabia entails the following important provisions:
- No withholding tax on dividends, provided that a minimum 25% participation exists. In all other cases, a 5% withholding tax will be applied;
- No withholding tax on interest;
- Withholding tax ranging between 5% and 8% on royalties; and
- Capital gains tax arising on the alienation of shares is paid in the state where the seller is resident, provided that the minimum 25% participation test is met at any time within the 12-month period leading up to the disposal of the shares.
The DTA between Cyprus and Barbados came into effect on January 1 2018 and provides for no withholding tax on dividends, interest, and royalties.
San Marino new protocol
The main changes introduced by the signing of the new protocol between Cyprus and San Marino relate to exchange of information procedures between the two countries.
The new and revised DTAs concluded by Cyprus enhance the pathway for investment into the countries concerned. New DTAs and changes to existing DTAs can have a substantial impact on existing structures in such countries.
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