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16 January 2019 Cyprus expands treaty network as of 1 January 2019 Cyprus’ Double Tax Treaty network has expanded for 2019 with a new Treaty with Luxembourg becoming effective as of 1 January 2019 and a new Treaty with the United Kingdom (UK), which replaces the previous Treaty signed in 1974. Moreover, two protocols for amending the existing treaties with Mauritius and San Marino are also now effective. This Alert summarizes the key provisions of the new treaties and amending protocols in effect as of 1 January 2019. The Treaty provides for 0% withholding tax on dividends if the beneficial owner is a company (other than a partnership) which directly holds at least 10% of the capital of the company paying the dividends. In all other cases, the withholding tax rate is 5% of the gross amount of the dividends paid. Capital gains derived by a resident of Cyprus or Luxembourg 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 capital gains arising from the sale of shares in real estate rich companies (i.e., shares deriving more than 50% of their value directly from immovable property) will only be taxed in the source state. The Treaty also includes an article on taxation of offshore activities which overrides any other provisions of the Treaty. The Treaty between Cyprus and Luxembourg is effective as from 1 January 2019 for both Cyprus and Luxembourg with respect to all taxes covered by the Treaty. In general, the Treaty provides for 0% withholding tax on dividends. However, a 15% withholding tax is imposed on dividends paid out of income or gains derived directly or indirectly from immovable property by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempt from tax, other than where the beneficial owner of the dividends is a pension scheme in the other country. Capital gains derived by a resident of Cyprus or the UK 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 capital gains arising from the sale of shares or comparable interests in real estate rich companies (i.e., shares deriving more than 50% of their value directly or indirectly from immovable property), other than shares in which there is substantial and regular trading on a Stock Exchange, will only be taxed in the source state. The Treaty also includes an article on taxation of offshore activities which overrides any other provisions of the Treaty. The Treaty is effective as from 1 January 2019 with respect to withholding and other taxes for Cyprus. With respect to the UK, the Treaty is effective as from:
Protocols to Existing TreatiesTreaty with MauritiusThe Protocol revises the provisions related to exchange of information in order to bring them in line with Article 26 of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention. The Protocol between Cyprus and Mauritius is effective as from 1 January 2019 for Cyprus and as from 1 July 2018 for Mauritius. The Protocol revises the provisions related to exchange of information in order to bring them in line with Article 26 of the OECD Model Tax Convention. During 2018, Cyprus signed new treaties with Andorra and Saudi Arabia. These treaties will come into force once the ratification process is completed. Ernst & Young Cyprus Limited, Nicosia
Document ID: 2019-5071 |
