Cyprus signs off Double Taxation Avoidance Agreements (DTAAs) with Bahrain and Ethiopia

Cyprus has concluded Double Taxation Avoidance Agreements (DTAAs) with Bahrain and Ethiopia. The treaty with Bahrain was ratified by Bahrain in March 2016 and entered into force on 26 April 2016. The treaty generally applies from January 2017. The treaty with Ethiopia was signed in Nicosia on 30 December 2015 and was published in the Official Gazette of the Republic of Cyprus on 18 January 2016. The DTAAs,are based on 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 treaties sign off was well received by the business communities of the above mentioned countries and it further enhances Cyprus’ position as an international business center, since some of its provisions are deemed to be significantly favorable. The DTAAs main provisions are analyzed below:

Permanent Establishment 

Bahrain: 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). 

Ethiopia: 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 

Bahrain: The withholding tax rate on dividend payments is set at 0%. 

Ethiopia: The withholding tax rate on dividend payments is set at 5%. 

Interest 

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

Ethiopia: The withholding tax rate on dividend payments is set at 5%. 

Royalties 

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

Ethiopia: The withholding tax rate on dividend 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. 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.

Additional 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) increase international investors’ options for channeling investments in the most tax efficient way. 

3. The Double Tax Avoidance Agreement between Cyprus and Switzerland which was signed on 25 July 2014 was entered into force on 1January 2016 following the ratification of the bilateral agreement by the two countries. 

4. Cyprus has concluded and signed Protocol amending the Double Taxation Agreement (DTA) with Ukraine on 11 December 2015 and was published in the Official Gazette of the Republic on 23 December 2015. The provisions of the signed protocol will come into effect as of 1st January 2019 on the date when the existing Convention will expire. 

For more information you may contact: 

Reanda Cyprus Limited 48 ArchangelouAvenue, 1st Floor,Engomi CY-2404 Nicosia, Cyprus 

Tel.: + 357 22670680 

E-mail: info@reandacyprus.com

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