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Cyprus – Iran Double Tax Treaty

In continuation of the ratification of the Cyprus-Iran Double Tax Treaty in January 2017, the Cyprus Government has announced that the Cyprus-Iran Double Taxation Treaty has now entered into force and will come into effect as from the 1st January 2018.

As mentioned in our previous tax update, the said tax treaty is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital and the prevention of fiscal tax evasion and applies to taxes imposed on behalf of each contracting state or of its political subdivisions or its local authorities, irrespective of the manner in which they are levied.

It is expected that the practical application of the double tax treaty will serve to strengthen the business relationships between the two countries and is expected to especially benefit the fields of real estate and shipping at the initial stages, whilst at the same time providing an access to Iranian businessmen into the EU market for further investments.

Some of the key provisions of the Double Tax Treaty are as follows:

1. Permanent Establishment

The permanent establishment definition included in the treaty is in line with the definition provided in the OECD Model Tax Convention. More specifically, the term includes a place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas, a quarry or any other place of exploration, exploitation and /or extraction of natural resources. A building site, a construction, assembly or installation project or supervisory activities in connection therewith, constitutes a ‘permanent establishment’ only where such site, project or activities continue for a period of more than twelve (12) months.

2. Income from immovable property

Income derived by a resident of a contracting state from immovable property (including income from agriculture or forestry) situated in the other contracting state may be taxed in that other state.

3. Withholding tax rate on dividends payments

Dividends paid by a company which is a resident of a contracting state to a resident of the other state may be taxed in that other state.

If, however, the recipient of the dividends is the resident of the other contracting state and the beneficial owner of the dividends, the tax so charged shall not exceed

  • maximum 5% withholding tax on dividends paid, if the beneficial owner of the dividends is a company (other than a partnership) holding directly at least 25% of the capital of the company paying the dividend;
  • maximum 10% withholding tax on dividends paid, in all other cases.

The above applies for payments from Iran to Cyprus. Payments from Cyprus to Iran or other foreign persons or entities do not carry any withholding tax due to Cyprus local tax law provisions.

4. Withholding Tax rate on Interest

Interest arising in a contracting state and paid to a resident of the other contracting sate may be taxed in that other contracting state. It can, however, be taxed in the contracting state in which it arises, but in this case, if the recipient is the resident of the other state and the beneficial owner of the interest the tax so charged shall not exceed 5% of the gross amount of the interest. The above applies for payments from Iran to Cyprus. Payments from Cyprus to Iran or other foreign persons or entities do not carry any withholding tax due to Cyprus local tax law provisions.

5. Withholding Tax rate on Royalties

Royalties arising in a contracting state and paid to a resident of the other contracting state may be taxed in that other contracting state. However, such royalties may also be taxed in the contracting state in which they arise but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed 6% of the gross amount of the royalties.
The above applies for payments from Iran to Cyprus. Payments from Cyprus to Iran or other foreign persons or entities do not carry any withholding tax due to Cyprus local tax law provisions.

6. Capital gains Taxation from the disposal of immovable property

The taxation of capital gains arising from the disposal of immovable property can be taxed in the country where the immovable property is situated. Capital gains Taxation from the disposal of shares

7. Capital gains Taxation from the disposal of shares

The taxation of capital gains arising from the disposal of shares in a company, which exceed 50% of ps value deriving directly from immovable property located in the other contracting state, can be taxed in the resident country, in which the property is situated.

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