Signed on the 24th of May 2016, the first Cyprus – Latvia Double Tax Treaty was ratified on the 3rd of June 2016. Details of the treaty became available during August 2016. The Treaty is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital (2010).
The main withholding tax rates with respect to dividends, interest and royalties are mentioned below:
-0% on dividends if the beneficial owner is a company (other than a partnership), and 10% in all other cases;
-0% withholding tax on interest will apply to interest payments made to a company resident in the other contracting state that is the beneficial owner thereof. If the beneficial owner is not the recipient company of the interest then the withholding tax rate will be 10%.
-As far as royalties are concerned, 0% withholding tax will apply to royalty payments made to a company resident in the other contracting state that is the beneficial owner thereof. If the recipient company will not be the beneficial owner of the royalty the withholding tax rate will be 5%.
Other provisions of the treaty include the following:
-Article 4 does not provide for the standard tie-breaker rule for determining the residence of a person, other than an individual, that is a resident of both states; in this situation, dual residence is resolved by the competent authorities of the two states by mutual agreement;
-Article 5 (permanent establishments) provides for a 9-month duration criteria that a building site, construction or assembly or installation project or a connected supervisory or consultancy activity must fulfil in order to constitute a permanent establishment;
-Article 7 (business profits) is based on the OECD Model 2008;
-Article 8 (shipping and air transport) provides that profits of an enterprise of a state from the operation of ships or aircraft in international traffic are taxable only in that state.
-Article 26 (exchange of information) is based on the OECD Model;
-The Treaty includes an article related to offshore activities, and
-The treaty includes an article on independent personal services (article 14) in line with the UN Model (2001).
The signing of the Treaty is expected to contribute to the further development of the economic relations between the Republic of Cyprus and the Republic of Latvia, as well as with other countries.
The treaty will take effect from 1 January in the year following the one during which all legal formalities and ratifications are completed to bring the treaty into force.
Andri Christodoulou, Eurofast Taxand Cyprus