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Cyprus and Georgia have concluded and signed a Double Taxation Avoidance Agreement (DTAA) during the 24th Annual Meeting of the European Bank of Reconstruction and Development which took place in May in Tbilisi. The DTAA, is based on the OECD Model Convention and will come into force as from 1 January 2016 when both countries are expected to complete the ratifications procedures. 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 DTAA’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 9 months.
Dividends
The withholding tax rate 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% (e.g. for patents, trademarks, copyrights, secret formulas/processes relating to scientific, commercial and industrial experience, artistic or scientific work including films).
Capital Gains
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.
Capital gains resulting from the disposal of shares (irrespective of the underlying assets of the company of which the shares are being disposed) are taxable only in the Contracting State in which the alienator is tax resident.
Important Notes for Tax Planning
The DTAA rates are deemed very favorable for international investment flows through Cyprus, given that dividend income and gain from the disposal of shares are exempted from income and any other taxation in the island.
