During 2017, and the first quarter of 2018, various double tax treaties’ (DTTs) developments have taken place in Cyprus, with a number of new DTTs, protocols and amending protocols being signed and coming into force.
The list of countries with which Cyprus maintains DTTs currently stands at 63 which is a significant number for such a small island as Cyprus.
Specifically and most recently, new DTTs have been signed with Saudi Arabia (on January 3, 2018) and the UK (on March 22, 2018). Both treaties are expected to enter into force in 2019. The beginning of 2018 marked the entry into forces of DTTs signed earlier with Barbados, Iran and Jersey.
New double tax treaty with the UK
The new DTT which was signed between the UK and Cyprus will be replacing the existing DTT between the two countries which has been in effect since 1975 (as amended in 1980). The new DTT provides for the following:
- No withholding tax on dividends, with the exception of dividends which are paid out of profits resulting of investment vehicles which distribute most of their income annually and whose income arises from immovable property exempt from tax
- No withholding tax on interest and royalties, provided that such payments are considered to be at arm’s length transactions
- Capital gains tax arising on the sale of immovable property (directly or indirectly) is paid in the country where the property is situated.
- Tax on pensions is paid in the country where an individual is considered to be a tax resident (certain exemptions apply)
The new DTT also includes a limitation of benefits provision/principle purpose test in accordance with the minimum standards of the BEPS project.
DTT with Saudi Arabia
The DTT signed between Cyprus and Saudi Arabia entails the following significant provisions:
- No withholding tax on dividends provided that a minimum 25% participation exists. In all other cases a 5% withholding tax will be applied
- No withholding tax on interest
- Withholding tax ranging between 5% and 8% on royalties
- Capital gains tax arising on the alienation of shares is paid in the state where the seller is resident provided that the minimum 25% participation test is met at any time within twelve months prior to the disposal of the shares
The DTT between Cyprus and Barbados came into effect on 1 January 2018 and provides for no withholding tax on dividends, interest, and royalties.
San Marino new protocol
The main changes introduced by the signing of the new protocol between Cyprus and San Marino relate to exchange of information procedures between the two counties.
The new and revised double tax treaties concluded by Cyprus enhance the pathway for investments into those countries. New DTTs and changes to existing DTTs can have a significant impact on existing structures in such countries. Our team can assist you in reviewing such structures and advising you on necessary changes.