Cyprus signs off a new Double Taxation Avoidance Agreement (DTAA) with the United Kingdom (UK) – March 2018

Cyprus and UK have signed a new Double Taxation Avoidance Agreement (DTTA) on 22 March 2018 that will replace the existing treaty that was effective since 1975.  The treaty is expected to enter into force in 2019, once both Cyprus and the UK exchange notifications that their formal ratification procedures have been completed.

The treaty is based on the OECD Model Tax Convention it covers corporate and personal income tax, defence tax and capital gains tax. The most important provisions are the following:

Dividends, Interest and Royalties

The withholding tax rate on dividends, interest and royalties is 0%. The only exception concerns dividends paid from certain investment vehicles out of income derived, directly or indirectly, from tax exempt immovable property income. In such cases a maximum 15% tax rate applies.

Capital Gains

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 when more than 50% of the value of these shares is derived directly or indirectly from immovable property situated in the other State. In such a case the State where the immovable property is situated has the right to impose tax on the capital gain, unless the shares have a substantial and regular trading on a Stock Exchange.

Limitation of Benefits

The new treaty includes a Limitation of Benefits clause, by which the benefits of the treaty shall not be granted in the instance where the obtaining of such benefit was one of the principal purposes of an arrangement or a transaction, unless the granting of such benefit would be in accordance with the object and purpose of the treaty, or such benefit would still be granted in the absence of the treaty.