Cyprus/January 2014
To enhance its position as a financial business centre and to attract more international business as well as to maintain and strengthen its economic/commercial ties with other countries, Cyprus has recently signed new double tax treaties that are with Spain, Portugal and Finland which have entered into force and are applicable from January 1 2014.
The double tax treaty signed with Portugal on November 19 2012 is a step further in bilateral relations between the two countries especially following Cyprus’s removal from the Portugal’s “Black List” of jurisdictions back in 2011.
The new treaty is based on OECD Model Convention.
The withholding tax rate set for dividends, interest and royalties is 10%.
Gains arising from the alienation of shares held in property rich companies may be taxed in the State in which the property is located.
The signing of the treaty as well as the Cyprus’s removal from the Portugal’s “black list” is expected to increase the investments between the two countries as now Portugal can use Cyprus as a gateway to Russia and ex Soviet Union Countries where Cyprus already have favourable treaties in place and Cyprus can use Portugal as a gateway to enter into South American countries.
Another recent treaty Cyprus signed is with Spain on February 14 2013.
Again the treaty is based on OECD Model Convention including the latest provisions on exchange of information (art. 26).
The main provisions of the treaty are as follow;
– The withholding tax on dividends is 5%, however it is 0% if the beneficial owner is a company which holds directly at least 10% of the capital of the company paying the dividends;
– No withholding tax on interest
– No withholding tax on royalties
– Gains arising from the alienation of shares held in property rich companies may be taxed in the State in which the property is located.
The treaty cannot be terminated by the contracting states during the first 5 years following its entry into force
With the application of this treaty Cyprus expected to be removed also from the Spanish “black list” in the near feature.
Finally, the treaty that was signed on 15 November 2012 with Finland.
This treaty also follows the OECD Model with the withholding taxes on dividends: 5% if the beneficial owner is company and holding at least 10% of the voting power in the company paying the dividends, otherwise 15% in all other cases.
Eurofast’s Take
It is utmost important to mention that irrespective of the treaty provisions Cyprus does not impose withholding taxes on payments made to non-residents on dividends, interest and royalties (for royalties if the rights exercised outside of Cyprus). Gains from securities are exempt from taxation as well as the gains from immovable property situated outside of Cyprus. In addition, tax sparing credit provisions are included in the Cyprus’s domestic legislation which allows relief from double taxation. Along with others such incentives make Cyprus already a very beneficial jurisdiction to invest and to do business.
For further information please contact our tax team:
Eurofast Taxand Cyprus
info@eurofast.eu