Cyprus has been hard at work at expanding its network of Double Tax Treaties, high significant success. As of 2015, Cyprus has concluded three (3) new Doubt Tax Treaties with:
- Bahrain
- Ethiopia
- Iran
It is also noted that within 2015, Cyprus has entered into the additional Protocol to amend the Double Tax Treaty with Ukraine (which is currently still pending ratification in order to enter into force).
Currently, although still early in 2016, this success is continuing, with the conclusion of three new Double Tax Treaties, as follows:
- Guernsey – effective as of the 1st January 2016
- Switzerland – effective as of the 1st January 2016
- Georgia – to become effective as of the 1st January 2017
All of the new treaties concluded by Cyprus are broadly based on the Organisation for Economic Co-operation and Development (“OECD”) Model Tax Convention framework with a number of modifications. It is worth noting that each treaty contains an article providing for the exchange of information which is based on Article 26 of the OECD Model Tax Convention on Income and on Capital.
Below are the key elements for the three new Double Tax Treaties concluded in 2016:
Cyprus – Guernsey Double Tax Treaty
- 0% withholding tax on dividends, interest and royalty payments;
- Capital gains from the alienation of any property are taxable only in the country in which the alienator is a resident. Specifically, gains arising from the sale of shares will only be taxed in the country of residence of the seller of the shares;
- Capital gains relating to immovable property and gains from the alienation of movable property of a permanent establishment are exempted from the above.
Cyprus – Switzerland Double Tax Treaty
- 0% withholding tax on interest and royalty payments.
- 0% withholding tax on dividends provided that the recipient of the income is:
- a qualifying pension fund, or
- the Government of the other state, or
- a company which holds directly at least 10% of the capital of the company paying the dividends during an uninterrupted period of at least one year.
- In all other cases relating to dividends, there is a 15% dividend withholding tax.
- The capital gains tax article allocates taxation rights to the source state for gains arising on the sale of shares in real estate rich companies (i.e., shares deriving directly or indirectly more than 50% of their value from immovable property).
- However, the provisions for the capital gains tax should not apply if:
- the immovable property is used in the carrying on of a business, or
- the shares are listed on the Stock Exchange of either Switzerland or Cyprus or any other stock exchange that may be agreed by the two countries, or
- the alienation of shares is derived in the course of a corporate reorganization, amalgamation, division or similar transaction.
Cyprus – Georgia Double Tax Treaty
- 0% withholding tax on dividends, interest and royalty payments;
- Capital gains derived by a resident of Cyprus or Georgia are not taxable in the country of investment. Specifically, any gains arising from the sale of shares will only be taxed in the country of residence of the seller of the shares.
- Capital gains relating to immovable property and gains from the alienation of movable property of a permanent establishment are exempted from the above.