Executive summary

Cyprus' Double Tax Treaty network has been expanded with three new treaties becoming effective as of 1 January 2018. These include treaties with Ethiopia, Iran and Jersey.

In addition, Cyprus also concluded new treaties with Barbados, Luxembourg and protocols for amending the existing treaties with Mauritius and San Marino. These will enter into force once the ratification process is completed.

This Alert summarizes the key provisions of the new treaties in effect as of 1 January 2018.

Detailed discussion

Treaty with Ethiopia

The Treaty provides for 5% withholding tax on dividends, interest and royalty payments. The Treaty also includes an article on taxation of offshore activities which overrides any other provisions of the Treaty.

Capital gains derived by a resident of Cyprus or Ethiopia are not taxable in the country of investment (except for gains relating to immovable property and gains from the alienation of movable property of a permanent establishment). Any gains arising from the sale of shares will only be taxed in the country of residence of the seller of the shares unless such shares derive their value or the greater part of their value directly or indirectly from exploitation rights or property situated in the source state and used in connection with the exploration or exploitation of the seabed or subsoil or their natural resources or from such rights and such property taken together.

The Treaty between Cyprus and Ethiopia is effective as from 1 January 2018 for Cyprus and 8 July 2018 for Ethiopia with respect to all taxes covered by the Treaty.

Treaty with Iran

The Treaty provides for 5% withholding tax on the gross amount of the dividend provided that the beneficial owner is a company (other than a partnership) which directly holds at least 25% of the capital of the company paying the dividends (10% in all other cases).

The Treaty also provides for 5% withholding tax on interest and 6% withholding tax on royalty payments.

The capital gains tax article allocates taxation rights to the source state for gains arising on the sale of shares in real estate rich companies (i.e., shares deriving more than 50% of their value directly from immovable property).

The Treaty between Cyprus and Iran is effective as from 1 January 2018 with respect to all taxes covered by the Treaty. For more information on this Treaty, see EY Global Tax Alert, Cyprus-Iran Double Tax Treaty to come into effect on 1 January 2018, dated 1 November 2017.

Treaty with Jersey

The Treaty provides for no withholding tax on dividends, interest and royalty payments. The Treaty also includes an article on taxation of offshore activities which overrides any other provisions of the Treaty.

Capital gains derived by a resident of Cyprus or Jersey are not taxable in the country of investment (except for gains relating to immovable property and gains from the alienation of movable property of a permanent establishment). Any gains arising from the sale of shares will only be taxed in the country of residence of the seller of the shares unless such shares derive their value or the greater part of their value directly or indirectly from exploitation rights or property situated in the source state and used in connection with the exploration or exploitation of the seabed or subsoil or their natural resources or from such rights and such property taken together.

The Treaty between Cyprus and Jersey is effective as from 1 January 2018 with respect to all taxes covered by the Treaty.