Cyprus: Double Tax Treaty between Cyprus and Jordan

On 17th December 2021 Cyprus and Jordan signed their first Double Taxation Avoidance Agreement (DTAA), which will be in force as soon as necessary ratification procedures are completed in both countries. 

The DTTA is based on the Organization for Economic Co-operation and Development (OECD) Model Tax Convention, covers all the minimum standards of the Base Erosion Profit Shifting (BEPS) project and its main provisions are briefly described below: 

Dividends 

A 5% withholding tax (WHT) rate applies where the beneficial owner (BO) is a company other than a partnership which holds directly at least 10% of the capital at the company paying the dividends.

For any other case, the WHT shall not exceed a 10% rate on gross dividends. 

Interest 

A 5% WHT rate applies if the recipient is the BO of the income, unless when the BO of the interest is the government, a political subdivision, a local authority or the National Bank of the other Contracting State, a NIL WHT applies. 

Royalties 

A 7% WHT rate applies on the gross amounts of royalties or fees for technical services if the recipient is the BO of the income. 

Capital Gains 

Capital gains (CG) are taxable only in the country in which the seller is resident, except for gains relating to immovable property and gains from the disposal of movable property of a permanent establishment for which the source jurisdiction maintains taxation rights.

However, CG arising to a resident of a country from the sale of shares in real estate holder companies deriving more than 50% of their value directly from immovable property may also be taxed in the source country. This provision applies only to gains which are attributable to the immovable property and does not apply to the sale of shares listed on an approved stock exchange. 

Entitlement to benefits and principal purpose test 

Article 29 of DTTA states that a benefit under the DTTA shall not be granted by the tax authorities, in respect of an item of income or capital, if it reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit.

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