Double Tax Treaty between Cyprus and Kazakhstan ratified; will enter into force 2021

On January 17th,2020, the double tax treaty between the Government of the Republic of Kazakhstan and Government of the Republic of Cyprus was ratified. The DTT Convention on income tax will enter into full force from 1st January 2021. The main amendments of the Convention cover – among other aspects – the taxation of dividends, interest, capital gains and royalties. Such provisions, in the long-term perspective, create unique opportunities for both countries’ businesses and entrepreneurs.

DTT Withholding Tax Rates

The treaty provides the possibility of lowering the withholding income tax rates on:

  1. Dividends:
    • 5% – if the company directly owns at least 10% of the capital dividend payer, or
    • 15% – in all other cases.
  2. Net income of a Permanent Establishment (PE) – 5%.
  3. Interest – 10%
  4. Royalty – 10%

Permanent Establishment

The Permanent Establishment (PE), described in Article 5, takes one of the central spots in the Convention. The wording of the “PE” is almost equal to the OECD Model Tax Convention (2017) and includes both construction activities lasting for a period of more than 6 months within any twelve months, as well as the provision of services for a period or periods aggregating more than 183 days in a twelve month period.

Corporate income tax (CIT)

Foreign legal entities are taxed only on income derived from sources in Kazakhstan or income derived through activity performed by a Permanent Establishment (PE) in Kazakhstan.

Capital gains

Under the Treaty, gains derived by a resident of one state from the alienation of shares or comparable interests in the capital of a company deriving more than 50% of their value directly or indirectly from immovable property situated in the other state may be taxed in that other state.
Per Cypriot legislation, there is no withholding tax on dividends paid if the parent company holds at least 1% of the shares of its subsidiary with any limitation of holding period required. Gains obtained from the disposal of any property outside Cyprus are exempted.

Exchange of information (EOI)

The Convention includes general regulations based on the OECD Model regarding the exchange of information. The authorized bodies of Kazakhstan and Cyprus are entitled to exchange information necessary for the implementation of the provisions of the Convention.

Offshore activities:

Under Article 21 of the Treaty, any enterprise of a contracting state that carries out offshore activities in the other contracting state will be deemed to have a permanent establishment in the other state. This does not apply if such activities cover an aggregate of 30 days or less in any 12 months beginning or ending in the fiscal year concerned.

For more information on the treaty, its details or how your business may be impacted, or to discuss how you can possibly benefit from its entry in force, please contact our team in Cyprus.

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Niki Antoniou
Tax and Legal Department
Oleksii Maistrenko
Tax and Legal Associate