- December 5, 2016
- Posted by: Panos
- Category: Investments, Taxation
New agreements for the avoidance of double taxation (DTA) between Cyprus and the following countries have been concluded in 2015: South Africa, Bahrain, Georgia, Iran, Ethiopia. All of the new agreements follow the OECD Model Convention.
Double Tax Treaty between Cyprus and South Africa
On April 2015 Cyprus and South Africa signed a Protocol which amends the double tax agreement between the two countries, came into force in September 2015. There are two changes effected by the Protocol to the treaty, which are the following:
(a) The withholding tax on dividends paid by a South Africa company to a Cyprus tax resident company or individual was zero and under the new provisions there would be:
(i) 5% withholding tax on dividends paid, if the beneficial owner of the dividends is a company holding at least 10% of the capital of the company paying the dividend
(ii) 10% in all other cases.
(b) The existing article 26 of the treaty on the Exchange of Information is replaced by the new article, which is in line with the OECD model treaty relevant article.
Benefits from the Treaty: Payments from South Africa to Cyprus get the advantage of eliminated South African withholding taxes (WHT) through access to the DTT between the two countries · At the level of Cyprus the two main incomes of a holding company are tax exempt (i.e. dividend that derives from South African operating subsidiaries as well as profit from sale of shares). Other revenue related profit is taxable in Cyprus at the flat rate of 12,5% · Payments from Cyprus to its non-Cyprus resident shareholders (companies or individuals) are not subject to any Cyprus withholding taxes
Cyprus – Bahrain Double Tax Treaty
The new double taxation agreement between Cyprus and Bahrain was signed in in March 2015. The agreement shall enter into the force on 1/1/2016.
The significant provisions of the agreement mostly based on the OECD Model agreement are:
- The Cyprus taxes covered (article 2) are the income tax, the corporate income tax, the special contribution for the defence of the Republic and the capital gains tax.
- The term ‘’permanent establishment’’(article 5) includes also a building site, a construction or installation project or any supervisory activities in connection therewith, but only if such site, project or activity lasts for a period of more than 12 months.
- Income from Immovable property (article 6) gives a taxing right to the source country in respect of the income from the use of rental therein.
- Dividends (article 10) paid by a company which is resident of a contracting state, is taxable only in the state of residence.
- Income from debt claims (article 11) arising in a Contracting State and paid to a resident of the other contracting state, shall be taxable only in that other state, but when there exists a special relationship between the two parties, the interest is restricted to the amount arrived at on the basis of an arm’s length transaction. It is to be noted that interest income payable from Cyprus to a non-Cyprus tax resident person is also not subject to tax in Cyprus under the domestic law.
- Royalties (article 12) arising in a Contracting State and paid to a resident of the other Contracting State shall be taxed only on that other State. When a special relationship exists between the two parties, the non taxable amount in the State of Source is restricted to the amount arrived at on the basis of an arm’s length transaction.
Double Tax Treaty between Cyprus and Georgia
The Double Tax Treaty (DTT) has been signed between Cyprus and Georgia in March 2015 and entered in to force in January 2016 and it is based on the OECD model.
Amongst others, the Double Tax Treaty will provide for 0% withholding tax on dividend payments, interest and royalties, and any capital gains that may arise from the disposal of shares are to be taxed only in the contracting state where the alienator is resident.
Double Tax Treaty between Cyprus and Iran
The treaty for the avoidance of double taxation was signed in August 2015 and entered into force on 1st of January 2016 following the date of the ratification process.
The tax treaty is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital and its main provisions are briefly outlined below:
- Withholding taxes:
- 5%of the gross amount of the dividends if the beneficial owner which holds directly at least 25% of the capital of the company paying the dividends;
- 10%of the gross amount of the dividends in all other cases.
- Interest:5% of the gross amount of interest, if the recipient is the beneficial owner of the interest.
- Royalties:6% of the gross amount of royalties, if the recipient is the beneficial owner of the royalties.
- Permanent Establishment:The permanent establishment definition included in the treaty is in line with the definition provided in the OECD Model Tax Convention.
- Capital gains:Gains derived by a resident of a Contracting State from the disposal of immovable property situated in the other Contracting State may be taxed in that other State.
Double Tax Treaty between Cyprus and Ethiopia signed
In December 2015, Cyprus signed a tax treaty with Ethiopia for the avoidance of double taxation. The tax treaty is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital and its main provisions are briefly outlined below:
Permanent Establishment: A building site or construction or installation project constitutes a ‘permanent establishment’ only if it lasts more than 6 months.
Dividends: The withholding tax shall not exceed 5% of the gross amount of the dividends, if the recipient is the beneficial owner of the dividends.
Interest: The withholding tax shall not exceed 5% of the gross amount of interest, if the recipient is the beneficial owner of the interest.
Royalties: The withholding tax shall not exceed 5% of the gross amount of royalties, if the recipient is the beneficial owner of the royalties. Entry into force: The treaty will enter into force once both States exchange notifications that their formal ratification procedures have been completed.
Cyprus – Switzerland tax treaty
The tax treaty signed between Cyprus and Switzerland entered into force on 15 October 2015 with the treaty provisions with respect to withholding taxes coming into effect on 1 January 2016. The applicable withholding tax rates with respect to dividends, interest and royalties are as follows:
Dividends: Nil withholding tax if the beneficial owner is: · a company (other than a partnership) the capital of which is wholly or partly divided into shares and which holds directly at least 10% of the capital of the company paying the dividends for an uninterrupted period of at least one year or · a pension fund or other similar institution recognized as such for tax purposes, or · the Government, a political subdivision, local authority or the central bank Otherwise 15% withholding tax applies in all other cases. Interest: Nil withholding tax Royalties: Nil withholding tax The treaty provisions with respect to other taxes will also come into effect on 1 January 2016, except in certain cases where the tax year may be different from the calendar year. In such cases, the relevant treaty provisions will be effective for tax years beginning on or after 1 January 2016 (the Swiss tax year follows the accounting year). For further details on the Cyprus – Switzerland treaty please refer to our tax alert dated 29 August 2014. We are at your disposal to discuss the above development with you.
We are at your disposal to supply you with further information on any of the treaties and
discuss how the above development may affect your business.