On 1 January 2014 five new agreements for the avoidance of
double taxation (DTAs) between Cyprus and other countries took
effect. The new agreements are with Estonia, Finland, Portugal,
Spain and Ukraine. The first four are entirely new
agreements, extending Cyprus's network of DTAs, and the
agreement with Ukraine replaces the agreement between Cyprus and
the USSR, which had been adopted by Cyprus and Ukraine following
the dissolution of the USSR. All the new agreements follow the OECD
Model Convention.
The new DTAs with Estonia, Finland, Portugal and Spain are
expected to lead to a substantial expansion of economic ties and
reciprocal investment activities between Cyprus and the countries
concerned. The revised agreement with Ukraine retains one of the
principal benefits of the DTA it replaced, namely the highly
favourable provisions regarding capital gains on disposal of shares
in property-rich companies. Movable property including shares is
taxable only in the country of residence of the owner, and since
Cyprus imposes no tax on disposals of shares except and to the
extent that the gain is derived from real estate in Cyprus, Cyprus
companies have become an ideal means of holding real estate in
Ukraine, effectively allowing property to be disposed of
tax-free.
Most of Ukraine's other DTAs include a provision allowing
gains from the disposal of property-rich companies to be taxed in
the contracting state in which the property is located, and it was
widely feared that a provision of this nature would be introduced
into the new agreement with Cyprus. However, this fear has proved
to be unfounded. Gains on disposals of movable property remain
taxable only in the contracting state in which the disponor is
resident, making Cyprus one of the world's most tax-effective
jurisdictions for holding Ukrainian property assets.
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