On 18 May 2018, Cyprus and Andorra signed a double tax treaty (the "Treaty") which will become effective from 1 January 2019. As the Treaty is based on the OECD Model Convention, it allows for the removal of tax related barriers to cross border trade and investment, whilst simultaneously assisting the prevention of tax evasion and/or avoidance. The key provisions of the Treaty are:
Interest/Dividends/Royalties: paid to a person who is resident in one of the two countries to the Treaty by a person which is resident in the other country is subject to 0% withholding tax.
Capital Gains Tax: any gains derived by Cyprus residents from the disposal of shares will be taxed exclusively in Cyprus unless the value of 50% of the shares are gained from immovable property situated in Andorra, in which case are taxed in the country in which the property is in. This exception does not apply if the shares are listed and that the disposal of shares occurred by a disposer who held not more than 25% of the capital of the company at all times during a 12-month period prior to the disposal.
Principal Purpose Tax: the Treaty establishes the OECD/G20 Base Erosion and Profit Shifting (BEPS) project Action 6 PPT, which prevents the granting of treaty benefits in inappropriate circumstances, in what is known as "treaty shopping". This detail allows for operations to be supported by appropriate substance and reflect a principal commercial ethos.
Originally published June 2018
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