Cyprus: Cyprus Double Tax Treaty Summary: 59 Tax Treaties And Counting

Last Updated: 8 June 2016
Article by Charles Savva

Georgia and Cyprus have signed a Double Tax treaty in May 2015 which came into effect January 2016.

Mr. Nodar Khaduri, Minister of Finance of Georgia, pointed out the main reasons for signing the tax agreement has been to increase economic cooperation between the two countries and attract more investments. He stated: "This is an additional guarantee for investors that Georgia is an open country and its tax legislation is convenient for them."

The Treaty is based on the OECD model with some applied modification. It applies to taxes on income and gains made from alienation of immovable property. Under Cyprus, personal income tax, capital gains tax, defence tax, and immovable property are covered whereas with Georgia income tax, property tax and profits tax are covered. The Double Tax Treaty between the two countries provides zero withholding tax on dividends, interest and royalty payments.

The Cyprus Finance Minister, Mr Harris Georgiades, said: "We are delighted that we are in Georgia and have signed an agreement which is a very important factor to attracting investments for both countries...this  creates the conditions to deepen economic relations between the countries and to implement the investment project,." with the intention to strengthen economic relations between both countries.

Iran and Cyprus sign double tax treaty, paving the way for trade and new investment opportunities between the two countries. 

The treaty for double taxation and tax evasion regarding income taxes, was signed in the presence of the Deputy Minister of Finance and the Chairman of the State Tax Administration of Iran, Mr Ali Asghari.

This double tax treaty could not have come at a more opportune time, with the recent lifting of sanctions which includes restrictions to investment in the country and EU ban on Iranian oil, and the successful negotiations of nuclear program struck with five permanent United Nations members including the European Union and Germany. Iran is set to invest abroad with its "ample liquid reserves", being the second largest oil producer worldwide.

Cypriot Finance Minister Mr Georgiades is optimistic that, "at this critical moment, Cyprus, with its specialised economy, its role as a reliable international service centre, can be a bridge between Iran and the European and international market,"serving as a hub for export from Iran to the rest of Europe. Equally the bilateral agreement opens doors to Cyprus with Emerging markets of Iran and Cyprus businesses having the opportunity to expand their operations and offer expertise in to Iran in the areas of Desalination and Pharmaceuticals.

The agreement is expected to spark of interest in both financial and business sectors, and the Cyprus Chamber of Commerce and Industry who hosted the invitation, has already established the Cypriot-Iranian Business Association where over 35 companies have registered their interest to join.

Yiannos Athiainitis, Deputy Chairman of the Cyprus Iranian Association affirmed that, "Cyprus can be Iran`s door to Europe. We are Iran`s most friendly country to the west. Relations between the two countries are long-standing; Iran has always been supportive in the Islamic Conference".

Switzerland and Cyprus sign double tax treaty on 25 July 2014 which came into force in January 2016.

The treaty stipulates that there is no withholding tax on royalties and interest as they are exempt. However dividend payments are subject to withholding tax (WHT) rates of 15% which can be reduced to a 0% tax rate if the beneficial owner of a company (excluding partnerships), is the holder of a minimum of 10% of the capital, (of which is wholly or partly divided into shares) of the company paying the dividend, for a minimum, uninterrupted period of one year. The 0% rate is also applicable if the beneficial owner is pension fund for tax purposes, or the Government, central bank, local authority or political division of one of the two contracting states. Regarding certain dividend payments out of Cyprus, withholding tax is not applicable by Cyprus, according to provisions of the Cyprus tax legislation.

Dividends from portfolio holdings (greater than 10% holdings), is subject to withholding tax which is the same with applying under Switzerland treaties with other financial centres.

Regarding disposal of shares in Swiss companies, under the tax treaty, Cyprus retains exclusive taxing rights, apart from certain cases where the shares disposed-of, derived more than 50% of their value directly or indirectly from immovable property located in Switzerland.

South Africa and Cyprus signed a revised double tax treaty which came into effect on 18 September 2015.

The Protocol replaces Article 10 (Dividends) of the Double Tax Treaty. Pursuant to the Protocol signed, dividends paid by a company resident in one contracting State to a company resident in the other contracting State shall be taxed in the latter.

With regards to withholding tax ("WHT") the maximum rate of tax for dividends will be 5% in the case where the beneficial owner of the dividend holds at least 10% of the capital in the dividend paying company and 10% WHT shall be effective on the gross amount of dividends in all other cases. Application of these limitations will be mutually agreed by the two contracting States. The amendment doesn't apply to WHT on dividend payments out of Cyprus, according to it's domestic legislation. For any dividend payments out of South Africa, taxpayers should evaluate the potential effect of these rules, should they be enforced retrospectively (pertaining to the effective date of protocol application being 1 April 2012).

Article 26 (Exchange of Information) of the Treaty is amended by the Protocol to further clarify the level of information that is expected to be exchanged between the two States. Paragraph 1 of Article 26 has been amended clarifying that the States "will exchange as much information as is foreseeably relevant for carrying out the provisions of the Agreement" as opposed to "as much information is necessary".

This Protocol paves the way for growth and enhanced business opportunities between both countries and is welcomed by Cyprus.

Ethiopia and Cyprus sign tax treaty on 30 December 2015, being the fifth tax treaty signed with an African country (others include South Africa, Seychelles, Mauritius and Egypt).

The agreement is signed on the basis of the Model Tax Convention for Avoidance of Double Taxation and provides the WHT rates of 5% on dividends, interest and royalties.

A Permanent Establishment is only constituted when it lasts longer than 6 months for a building site, construction or installation project.

The Treaty will enter into force only once the two countries have confirmed ratification procedures have been completed. In the case of Cyprus the enforcement date will be the 1st January preceding the date of the treaty enforcement. Subsequently for Ethiopia it will be 8th July preceding the treaty enforcement date.

Overall, Cyprus is fast expanding its treaty network, enhancing its economic relations with many countries worldwide and showing why Cyprus is among the most competitive tax jurisdictions in Europe.

For further information on the above or to evaluate the use of Cyprus tax treaties, please contact Mr Charles Savva, Managing Director and Head of Tax, at c.savva@savvacyprus.com

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.

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