tax

Cyprus and United Kingdom signed a Tax Treaty on 22nd March 2018

13 September, 2018

Introduction

On the 22nd of March 2018, Cyprus and United Kingdom entered into a Double Tax Treaty ('DTT') that enables both countries to expand their DTT network and strengthen their mutual economic and commercial relations.

This treaty has replaced the existing treaty among Cyprus, the United Kingdom and the Northern Ireland which was signed in Nicosia on the 20th of June 1974. 

The DDT is effective in Cyprus for: 
i.    Taxes withheld at source for amounts paid or credited on or after 1st January 2019; and 
ii.    Other taxes from 1st January 2019. 

Summary of the main provisions of the DTT:  

1.    Interest 

A 0% (zero per cent) withholding tax rate will be applied, unless the interest is derived from a permanent establishment situated in the other State. However, the exemption will not apply in cases where the interest paying and receiving entities maintain a special relationship (i.e. are related parties) and the interest rate exceeds the rate that would be applied in an arm’s length transaction. Any excess over and above the arm’s length rate shall remain chargeable under the domestic legislation in which the interest paying company is a resident.

2.    Dividends

A 0% (zero per cent) withholding tax rate will be applied on dividend payments, with the exception of dividends paid by certain investment vehicles out of income derived, directly or indirectly, from tax exempt immovable property income, in which cases a 15%withholding tax rate applies.

3.    Royalties 

A 0% (zero per cent) withholding tax rate will be applied on royalty payments, unless such royalties paid to a resident of a Contract State are derived by a permanent establishment of that entity in the other State. Additionally, the exemption does not apply where the royalty paying and receiving entities maintain a special relationship (i.e. are connected parties), and the royalties exceed the charge that would be applied in an arm’s length transaction. Any excess over and above the arm’s length charge would remain chargeable under the domestic legislation in which the royalty paying company is a resident.

4.    Capital Gains Tax

Capital gains arising from the alienation of the shares of a company will be taxable only in the State of residency of the alienator, except where more than 50% of the value of such shares is derived directly or indirectly from immovable property situated in the other State. In such a case, taxation will be imposed in the State where the immovable property is situated, unless the alienated shares are traded on a stock exchange.

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Disclaimer

The information set out in this publication provides general guidance and for information purposes only.  It does not constitute or substitute professional advice. We shall not be responsible for any loss occasioned by acting or refraining from acting on the basis of this publication.