A Double Tax Treaty between Cyprus and Iran will come into effect on 1 January 2018.
Cyprus and Iran (the Contracting States) signed the Double Tax Treaty (the Treaty) on 4 August 2015.
Like most Double Tax Treaties, the Treaty complies with the Organisation for Economic Co-operation and Development Model Tax Convention for the Avoidance of Double Taxation (the OECD Model Convention) and applies to taxes imposed on behalf of each Contracting State, irrespective of the manner in which they are imposed.
The Treaty is expected to further foster trade and economic relations between the Contracting States and to offer certainty and fiscal incentives for investors looking to invest into and out of Iran, via Cyprus.
The specific taxes which the Treaty covers for each Contracting State are as follows:
- Income tax
- Income tax
- Corporate Income tax
- Special Contribution for Defence of the Republic tax (SDC) tax
- Capital gains tax
A permanent establishment, for the purposes of the Treaty, is a fixed place of business through which an enterprise of a Contracting State wholly or partly carries on the business in the other Contracting State. This definition is in line with the definition provided in the corresponding article of the OECD Model Convention. More specifically, a building site, a construction, assembly or installation project or supervisory activities in connection therewith, constitutes a 'permanent establishment' only if it lasts more than 12 months.
Income from immovable property
Article 6 of the Treaty, on income from immovable property, provides that income derived by a resident of a contracting state from immovable property (including income from agriculture or forestry) may be taxed where that immovable property is situated.
The profits of an enterprise are taxable only in the Contracting State in which it 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.
Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State. Dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that Contracting State, but if the recipient is the resident of the other Contracting State and the beneficial owner of the dividends the tax so charged shall not exceed:
- 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends;
- 10 per cent of the gross amount of the dividends in all other cases.
Payments from Cyprus to Iran or other non-Cyprus resident persons or entities do not carry any withholding tax due to Cyprus local tax law provisions.
Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. It can, however, be taxed in the Contracting State in which it arises, but if the recipient is the resident of the other state and is the beneficial owner of the interest the withholding tax shall not exceed the rate of 5 per cent.
Payments from Cyprus to Iran or other foreign persons or entities do not carry any withholding tax due to Cyprus local tax law provisions.
Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. Such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, the withholding tax shall not exceed the rate of 6 per cent.
Capital gains arising from the alienation of company shares are taxable in the Contracting State where the alienator is resident, unless more than 50 per cent of the value of the shares is derived directly from the immovable property situated in the other Contracting State, in which case tax is levied in the Contracting State where the immovable property is situated.
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.