The 24th May 2016 marked the 60th double tax treaty entered into by Cyprus. The tax treaty was signed between Latvia and Cyprus, in Brussels, based on the OECD Model Convention for the Avoidance of Double Taxation on Income and Capital, also encompassing provisions from the 2011 United Nations Model Double Taxation Convention between Developed and Developing Countries (the UN Model).
"The update, maintenance and extension of the existing network of Treaties for the Avoidance of Double Taxation, which are of great economic and political importance to Cyprus, aim at further enhancing and attracting foreign investments and promoting Cyprus as an international business centre", as reported by Mr Harris Georgiades, Minister of Finance.
The main provisions in the agreement, include:
Taxes Included within Scope of Tax Treaty
- The Latvian personal income tax and Enterprise income tax; and
- The Cyprus income tax, corporate income tax, capital gains tax and special contribution for the Defence of the Republic (otherwise known as SDC tax).
The agreement will also be extended to any similar or identical taxes imposed in future in addition to, or in place of, the existing taxes.
A permanent establishment according to OECD models definition, namely storage and display of goods, maintenance of stocks for processing by a third party, maintenance of a purchasing or information-gathering facility or for preparatory or auxiliary purposes.
A building site, a construction, assembly or installation project or a supervisory or consultancy activity in connection with any such project constitutes a permanent establishment providing it lasts for more than nine months.
Income from Immovable Property
Income from immovable property may be taxed in the contracting state where the property is situated. So in the case of profits arising from sale of immovable property in Latvia, it may be taxed in Latvia.
Withholding Tax Rates in Respect to Interest, Dividends & Royalties
A 0% withholding tax rate will be paid on Dividends/Interest/Royalty payments made to a company resident in the other contracting state as long as the beneficial owner of the dividend/interest or royalty is a company (but not a partnership) resident, in the other contracting state. Should this not apply, and the recipient company is not the beneficial owner, the dividend/interest withholding tax will be 10% (other than 5% in the case of royalties).
The Interest and Royalties Directive and the Parent Subsidiary Directive will also be applicable, with both countries being part of the EU.
Income and/or profits incurred by a resident of Cyprus or a contracting state from alienation of immovable property in Latvia or the other contracting state may be taxed in Latvia or the contracting state in which the property is situated.
Profits derived from disposal of shares or similar interests in a company or other entity deriving more than 50 per cent of its value from immovable property situated in Latvia, or any other contracting state may also be taxed in the contracting state in which the immovable property is situated.
Profits derived by a resident of Cyprus from the disposal of immovable or movable property associated with a permanent establishment, may be taxed in Cyprus or the contracting state providing it is the tax residence of the person disposing of the shares.
Exchange of Information
The treaty includes an exchange of information article, in line with article 26 of the OECD Model Convention.
Entry into Force
The agreement will enter into force when the two governments inform each other of completion of their ratification procedures. The treaty will take effect as from 1 January preceding the date of enforcement.
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