Cyprus: New Double Tax Agreement Between Cyprus And Switzerland

Last Updated: 27 August 2014
Article by Philippos Aristotelous

On July 25 2014 Switzerland and Cyprus signed a new agreement for the avoidance of double taxation. It is the first double tax agreement between the two countries and will contribute to the development of bilateral economic relations. The agreement will come into force once it has been ratified by both countries.

The new agreement closely follows the 2010 Organisation for Economic Cooperation and Development (OECD) Model Convention, with only minor modifications, and the protocol to the agreement clarifies certain detailed provisions.

Taxes covered

The agreement covers all taxes on income and wealth levied by a contracting state or by any of its subdivisions or local authorities, including taxes on capital appreciation and on gains from the alienation of property. Income taxed at source and lottery winnings are excluded from the scope of the agreement.

Income from immovable property

As in the OECD Model Convention, income from immovable property may be taxed in the contracting state where the property is situated.

Business profits

Business profits are taxable only in the contracting state in which the taxpayer is resident, unless it carries on business in the other contracting state through a permanent establishment there, in which case the profit attributable to the permanent establishment may be taxed in the contracting state in which it is located.

International shipping and transport

Business profits from the operation of ships or aircraft (including income from containers, trailers and related equipment) in international traffic are taxable only in the contracting state in which the enterprise is resident. While the OECD Model Convention grants taxation rights to the state in which the effective management of the enterprise is located, in practice the outcome is the same, since residence is defined by the location of management and control.

Dividends

Cyprus does not impose withholding taxes on dividends paid to non-residents. In Switzerland, dividends paid to non-resident shareholders are generally subject to withholding tax at a rate of 35%.

The double tax agreement exempts dividends paid by a company resident in one contracting state to a resident of the other from withholding taxes in the contracting state from which they originate, as long as the beneficial owner of the dividend is a company (but not a partnership) resident in the second contracting state that has held at least 10% of the capital of the company paying the dividend for at least a year without interruption. Article 2 of the protocol makes clear that the shares need not have been held for a year before the dividend is paid, but that the minimum holding period may be completed after the payment of the dividend.

Dividends paid to pension funds or to government bodies (including a central bank) in the other contracting state are also exempt. Otherwise, the dividend may be taxed at up to 15%.

Interest and royalties

Interest and royalties are taxable only in the country in which the recipient is resident, provided that the recipient is the beneficial owner.

Cyprus-resident natural persons who receive interest from Switzerland will be subject to a lower tax charge by disclosing the interest and opting for taxation in Cyprus, rather than imposition of withholding tax in Switzerland under the taxation of savings income agreement between Switzerland and the European Union. In any event, the current renegotiation of the taxation of savings income agreement is expected to result in automatic information exchange.

Capital gains

Gains derived by a resident of one contracting state from the alienation of immovable property situated in the other contracting state, or from the disposal of property associated with a permanent establishment situated in the other contracting state, may be taxed in the contracting state in which the immovable property or the permanent establishment is situated.

Gains from the disposal of ships and aircraft used for international traffic are taxable only in the disponor's country of residence.

Gains made by a resident of one contracting state from the disposal of shares that directly or indirectly derive more than 50% of their value from immovable property situated in the other contracting state may be taxed in that other state, with the following exemptions:

  • shares listed on a stock exchange established in either contracting state or agreed upon by the competent authorities of the contracting states;
  • shares of a company the majority of whose assets comprise real estate used for its normal business activities; and
  • disposals in the course of a reorganisation, merger, demerger of companies or similar transaction. Article 3 of the protocol provides that the entities concerned must be members of the same group in order to qualify.

Gains derived from the disposal of all other property are taxable only in the contracting state in which the disponor is resident.

Offshore activities

Like other recent Cyprus double tax agreements, the Cyprus-Switzerland agreement includes an article dealing specifically with offshore activities. It provides that a Swiss-resident enterprise undertaking activities on the continental shelf of Cyprus will be treated as conducting a trade or business in Cyprus through a permanent establishment in respect of the activities concerned, unless the aggregate duration of the activities is no more than 30 days in any 12-month period. Associated companies are treated as one for the purpose of assessing the duration of their activities.

Taxes on capital

Capital represented by immovable property owned by a resident of one contracting state and situated in the other may be taxed in the state in which the property is located. The same applies to movable property forming part of the assets of a permanent establishment which an enterprise of one contracting state has in the other contracting state, or of a fixed base for the performance of independent personal services.

All other elements of capital of a resident of a contracting state are taxable only in the state of residence.

Exchange of information

The exchange of information article reproduces Article 26 of the OECD Model Convention verbatim, and adds a proviso allowing information received by a contracting state to be used for wider purposes than the determination of tax liabilities if this is allowed under the laws of both states and the competent authority of the state that supplied the information authorises such wider use.

However, the protocol to the agreement provides robust safeguards against abuse of the information exchange provision by requiring the contracting state that requests information to fulfil specified procedures to demonstrate the foreseeable relevance of the information to the request. No request is to be submitted unless the state making the request has exhausted all reasonable means available in its own territory to obtain the information, and every request must be accompanied by detailed information to justify it.

The protocol also makes clear that:

  • information requested must be foreseeably relevant;
  • 'fishing expeditions' are not permitted; and
  • neither state is obliged to provide information spontaneously or automatically - all information exchange is to take place on a mutual and equitable basis.

These provisions are in line with the robust safeguards against abuse of the information exchange provisions contained in Cyprus's Assessment and Collection of Taxes Law. Requests for the exchange of information are dealt with by a specialist unit and informal exchange of information between tax officers bypassing the competent authority is prohibited. When making a request, a detailed case must be made, with the criteria set out in a formal, reasoned document. In effect, this means that the authorities requesting the information must already have a strong case before they request the information, and it will not be possible to undertake fishing expeditions without first gathering significant evidence. As a final safeguard, the written consent of the attorney general must be obtained before any information is released to an overseas tax authority.

Entry into force and termination

The agreement will enter into force when the two governments inform one another that the requisite constitutional procedures have been completed.

Termination of the agreement will require written notice by either contracting state at least six months before the end of any calendar year, whereupon the agreement will cease to have effect from the beginning of the following year.

Anti-abuse

The protocol introduces an anti-abuse provision, to the effect that the agreement will not apply in cases of abuse and that, in the event that a contracting state intends to refuse the benefits of the agreement on grounds of abuse, it may consult the competent authority of the other contracting state.

Comment

As well as being one of the world's most important financial centres, Switzerland is the base for many ultra-high net worth individuals with business and personal interests in Cyprus. The new double tax agreement will be a valuable addition to Cyprus's extensive treaty network and it is hoped that the remaining steps required to bring it into effect will be completed soon.

Originally published by International Law Office.

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 Mondaq.com.

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

Authors
Philippos Aristotelous
 
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 Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.