Cyprus enjoys the benefits of five additional Double Taxation Avoidance Agreements (DTAA) ratified and effective from 1 January 2014

The Cyprus Ministry of External Affairs and Ministry of Finance have announced that the internal procedures required for the ratification of the DTAAs with the following countries are completed and the DTAAs are considered effective as of 1 January 2014: 

1. Portugal 

2. Ukraine 

3. Estonia

4. Finland 

5. Kuwait 

The DTAAs are based on the OECD Model Convention and are expected to further improve the business cooperation between Cyprus and the five abovementioned countries. The ratifications were well received by the local and foreign business communities and international investors and further enhance Cyprus’ position as an international business center, since some of their provisions are deemed to be significantly favorable. The DTAAs main provisions are analyzed below.

Permanent Establishment 

The DTAAs follow the definitions of a Permanent Establishment as per the OECD model. 

Dividends 

Portugal: The withholding tax rate on dividend payments is set at 10%. 

Ukraine: In cases where the investment of the beneficial owner in the company paying the dividend is at least 20% (of the total shares) or had a cost of at least €100,000, the withholding tax rate is set at 5%. In all other cases the withholding tax rate is 15%. 

Estonia: No withholding tax on dividend payments. 

Finland: The withholding tax rate is 5% of the gross amount of the dividends, if the beneficial owner is a company (other than a partnership) which controls directly at least 10% of the voting power in the company paying the dividends; 15% in all other cases 

Kuwait: The withholding tax rate on dividend payments is set at 10%.

Interest 

Portugal: The withholding tax rate on interest is set at 10%. 

Ukraine: The withholding tax rate on interest was set at 2%. 

Estonia: No withholding tax on interest payments. 

Finland: No withholding tax on interest payments. 

Kuwait: The withholding tax rate on interest is set at 10%, unless the interest is paid to any governmental organization, in which case it is 0%. 

Royalties 

Portugal: The withholding tax rate on royalties is set at 10%. 

Ukraine: The withholding tax rate on royalties in respect of any copyright of scientific work, patents, trademarks, secret formula, process or information concerning industrial, commercial or scientific experience is 5% (10% in all other cases). 

Estonia: No withholding tax on royalty payments.

Finland: No withholding tax on royalty payments. 

Kuwait: The withholding tax rate on royalty payments is set at 5%. 

Gains 

The DTAAs follow the OECD model in relation to gains arising from disposal of shares and other movable or immovable properties. Some of them include highly favorable provisions in relation to taxing rights with respect to capital gains arising from a disposal of shares or any other movable property. Those rights in the case of the DTAA with Ukraine for example are granted to the country in which the person making the disposal is a tax resident irrespective of the underlying assets of the company in which the shares are being disposed of. 

Important notes for tax planning 

1. Cyprus unilaterally does not withhold taxes on outbound dividends and interest payments. 

2. The continuously expanded network of DTAAs Cyprus has signed off and ratified and the application of the EU Directives (ParentSubsidiary and Interest – Royalties) increase international investors’ options for channeling investments in the most tax efficient way 

3. A number of DTAAs await for ratification, such as the ones with Spain and Norway.

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