Cyprus: The New Double Taxation Agreement Between Cyprus And Germany

Last Updated: 16 June 2011
Article by Philippos Aristotelous

Cyprus and Germany have signed a new Agreement on the Avoidance of Double Taxation, which, when ratified, will replace the existing agreement of 1974 ("the 1974 agreement").

Most of the changes brought about by the new agreement merely reflect changes to the OECD Model Tax Convention (for example, there is no longer an article covering personal services) or updating of definitions (for example, the 1974 agreement referred only to income tax in Cyprus, whereas the new agreement specifies all the taxes covered). However, a number are more substantial.

Permanent establishment

Article 5(3) of the new agreement extends the definition of a construction or installation project to include supervisory activities, but no permanent establishment arises until after 12 months' activity. (Under the 1974 agreement a permanent establishment arose after six months).

Article 5(5) provides that the exercise of activities on behalf of an enterprise by a representative other than an independent agent may create a permanent establishment, even though there is no fixed place of business.

Shipping, inland waterways transport and air transport

Article 8 has been updated to reflect the current OECD wording, which includes inland waterways transport (the 1974 agreement referred only to shipping and air transport). As Cyprus has no navigable inland waterways this is unlikely to be material in practice.

More significant is the removal of article 8(3) of the 1974 agreement, which allowed Germany to tax profits of Cyprus resident companies or partnerships engaged in international shipping with greater than 25% foreign ownership in certain circumstances.

The Protocol to the new agreement makes clear that profits of third party shipmanagement companies (enterprises which perform the various tasks of operating a ship for shipping enterprises, such as crewing, technical and commercial management) are included within the definition of profits from the operation of ships for the purposes of Article 8.

Associated enterprises

In line with the latest OECD Model Convention, Article 9 includes a provision stating that where taxable profits in one country are increased to bring them onto an arm's length basis a corresponding downward adjustment must be made in the other country.


The maximum tax charge in the country of residence of the paying company is 5% as long as the recipient is the direct beneficial owner of 10% of the paying company's capital. For holdings below the 10% threshold the maximum rate is 15%. Under the 1974 agreement the maximum rate was 10% and the minimum holding threshold was 25%. Furthermore, no tax will be imposed on dividends paid where a company resident in one contracting state derives income or profit from the other contracting state, unless the dividends or the holding in respect of which they are paid are connected with a permanent establishment in that other contracting state.


Interest arising in one country which is beneficially owned by a resident of the other country is taxable only in the country of residence of the recipient. The 1974 agreement provided that tax of up to 10% could be imposed by the country in which the interest arose. Penalty charges for late payment are not regarded as interest for the purposes of the new agreement.


Royalties arising in one country which are beneficially owned by a resident of the other country are taxable only in the country of residence of the recipient unless the recipient has a permanent establishment in the other country, and the royalties are derived from that permanent establishment.

The term "royalties" includes any kind of payments for the use or the right to use a person's name, picture or any other similar personality rights and payments received as consideration for the registration of entertainers' or sportsmen's performances by broadcasting media.

Business profits for partnerships

Article 7 of the new agreement provides that, in the case of partnerships, business profits includes the remuneration received by a partner from the partnership for activities in the service of the partnership and for the granting of loans or the provision of assets.

Capital Gains

In line with the current OECD Model Convention, Article 13 includes a provision that gains from disposal of shares or similar rights in companies which derive more than 50% of their value directly or indirectly from immovable property may be taxed in the country where the property is situated. Similarly, gains from disposal of ships and aircraft are taxable in the country in which the place of effective management is situated.

Elimination of double taxation

The 1974 agreement included a complicated mix of methods to eliminate double tax but in the new agreement double taxation is eliminated by the credit method in both countries.

Exchange of information

Article 25 of the new agreement goes a little further than the corresponding article of the current OECD Model Convention in allowing the use of information gathered for purposes outside the normal scope, if both countries' laws permit it. Otherwise it mirrors the OECD text. The Protocol to the new agreement provides safeguards for taxpayers, requiring personal data to be appropriately protected, irrelevant data to be removed, and holding the authorities liable for any unlawful damage resulting from the exchange of information.

Definition of "place of effective management"

The Protocol to the new agreement defines "the place of effective management", which is a term of increased importance in the context of all OECD Model based treaties, as "the place where the key management and commercial decisions that are necessary for the conduct of the entity's business are in substance made" in line with the current Commentary on the Model Tax Convention.

Procedural rules for taxation at source

The new agreement includes a new Article 26 regarding imposition of tax at source and setting out provisions for the relevant amounts to be refunded.

Entry into force and effective date

The new agreement will enter into force when ratified by both countries and take effect from the following 1 January, on which date the 1974 agreement will cease to apply.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Philippos Aristotelous
Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions