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Cyprus and Latvia sign a Double Tax Treaty

AS of the 24th of May 2014, Cyprus and Latvia have signed a Double Tax Treaty between the two countries. The Double Tax Treaty has been subsequently published in the Cyprus Official Gazette on the 3rd June 2016.

The new Double Tax Treaty, which is based on the OECD Model, includes the following main provisions:

  • Dividends and interest: Zero (o) withholding tax (“WHT”) will apply to dividends or interest paid to a company (other than a partnership) resident in the other contracting state that is the beneficial owner of the dividends/interest; otherwise, the rate will be 10%.
  • Royalties: Zero (0) WHT will apply to royalties paid to a company (other than a partnership) resident in the other contracting state that is the beneficial owner of the royalties; otherwise, the WHT rate will be 5%.
  • Capital gains: Gains derived by a resident of a contracting state from the disposal of immovable property situated in the other contracting state may be taxed in that other state. Gains derived by a resident of a contracting state from the disposal of shares in a company deriving more than 50% of their value directly or indirectly from immovable property situated in the other contracting state may be taxed in that other state. Gains derived by a resident of a contracting state from the disposal of shares other than those referred to above will be taxable only in state of residence of the person disposing the shares.
  • Permanent Establishment: It is worth noting that according to the tax treaty, a building site or construction or installation project will constitute a permanent establishment only if it lasts more than 9 months (and not 12 months as per the OECD model tax treaty).
  • Exchange of information: The treaty contains an OECD-compliant exchange of information article.
  • Entry into force: The treaty will enter into force once both contracting states exchange notifications that their formal ratification procedures have been completed. The provisions of the treaty with respect to taxes will have effect in both contracting states on or after 1 January following the date the treaty enters into force.

It should be noted that currently, Latvia does not levy withholding tax on dividends, interest or royalty payments, except when such payments are made to persons resident in a jurisdiction included on a black list issued by the Latvian government.

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