Cyprus signs off a Double Taxation Avoidance Agreement (DTAA) with Barbados

Cyprus and Barbados have concluded and signed a Double Taxation Avoidance Agreement (DTTA) on 3 May 2017 in London.  The DTTA generally complies with the provisions of the OECD Model Convention and will come into force as from the 1st January next following the year in which each country completes the ratifications process.

The treaty sign off was well received by the business communities of the two countries and it further enhances Cyprus position as an international business center, since some of its provisions are deemed to be significantly favorable. The DTTA’s main provisions are analyzed below:

Permanent Establishment

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 6 months (definition in compliance with OECD model).

Dividends

The withholding tax rate on dividends is set at 0%.

Interest

The withholding tax rate on interest is set at 0%.

Royalties

The withholding tax rate on royalties is set at 0%.

Capital gains

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 deriving 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.

Amendment in Cyprus Tax Resident Individual term

On 14 July 2017, the House of Representatives unanimously voted and approved an amendment to the definition of the “Cyprus Tax Resident Individual” term in the Income tax law.

In detail, an individual who does not remain in any other jurisdiction for one or more periods which altogether exceed 183 days in the same tax year and is not a tax resident of another jurisdiction within the same tax year, can be considered a Cyprus Tax Resident Individual if the following conditions are satisfied:

1. he should remain in Cyprus for at least 60 days during the tax year;
2. he should pursue any business in Cyprus and/or to work in Cyprus and/or to be a director in a company resident in Cyprus at any time during the tax year and
3. he should maintain a permanent residence in Cyprus, which can be either owned or rented

It should be clarified that if the employment/business or holding of an office as per the condition (ii) is terminated, then the individual shall cease to be considered a Cyprus tax resident for that tax year under these extended rules.

Advantages of Cyprus Tax Residency

Cyprus tax residents are liable to Cyprus tax on their worldwide income. The current Cyprus income tax rates are the following:

Tax Base (EUR)

Tax rate (%)

Up to €19.500

0%

€19.501 to €28.000

20%

€28.001 to €36.300

25%

€36.301 to €60.000

30%

Over €60.000

35%

These tax incentives exist for individuals employed in Cyprus who were not previously Cyprus tax residents:

·   The lower of €8.550 or 20% of the remuneration from any office or income from employment in Cyprus is exempted from income tax for a period of 5 years. This incentive will expire in 2020.

·     For individuals with employment income exceeding €100.000 per annum there is a 50% tax exemption which can be applied for a 10 year period.

Any individuals which are only Cyprus tax residents but not Cyprus domiciled are exempted from the Special Defence Contribution which is imposed on certain types of income such us dividends, interest and rents.