Cyprus enjoys the benefits of three additional Double Taxation Avoidance Agreements (DTAA)

The Cyprus Ministry of External Affairs and Ministry of Finance announced that Cyprus has concluded and signed Double Taxation Avoidance Agreements (DTAA) with the following countries:

1. Switzerland

2. Guernsey

3. Lithuania

The DTAAs are based on the OECD Model Convention and are expected to further improve the business cooperation between Cyprus and the three above mentioned countries. The treaties were well received by the local and foreign business communities and international investors and shall 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 

Switzerland & Guernsey: Based on the new treaty the definition of permanent establishment also includes a building site or construction or installation project or any supervisory activities in connection with such site or project constitutes a permanent establishment only if it lasts more than 12 months (definition in compliance with OECD model). 

Lithuania: Based on the new treaty the definition of permanent establishment also includes a building site or construction or installation project or any supervisory activities in connection with such site or project constitutes a permanent establishment only if it lasts more than 9 months (definition in compliance with OECD model). 

Dividends 

Switzerland: In cases where the recipient of the dividend is a company and it holds at least 10% of the total shares of the company paying the dividend the withholding tax rate is set at 0%. All other cases the withholding tax rate is 15%. 

Guernsey: No withholding tax on dividend payments. 

Lithuania: If the recipient of the dividend is a company and it holds at least 10% of the total shares of the company paying the dividend the withholding tax rate is set at 0%. All other cases the withholding tax rate is 5%. 

Interest 

No withholding tax on interest payments for Switzerland, Guernsey and Lithuania 

Royalties 

No withholding tax on royalty payments for Switzerland and Guernsey 

Lithuania: In case where the recipient is beneficial owner, the withholding tax rate is set at 5%. 

Capital Gains 

Switzerland: Gains from the disposal of immovable property are taxed in the country where the immovable property is situated. Capital gains arising from the disposal of shares of which more than 50% of their value directly or indirectly from immovable property in the other Contracting State may be taxed in that other State. Other capital gains from the alienation of any other property are taxable only in the place of residence of the alienator. 

Guernsey & Lithuania: Capital gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State. Other capital gains from the alienation of any other property are taxable only in the residence State.

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 (Parent-Subsidiary and Interest-Royalties) increasing international investors’ options for channeling investments in the most tax efficient way. 

3. The DTAAs with Switzerland and Guernsey will be enforced from the 1st January following the year in which Switzerland and Guernsey inform Cyprus of their ratifications. In the case of Lithuania, the convention was ratified on 17 April 2014 and shall be effective with respect to taxes on income or capital and other taxes from 1st January 2015.