Double Taxation Avoidance Agreement (DTAA) between Cyprus and the Republic of Latvia ratified and Amendment of Article 13 of the Cyprus-Russia Double Taxation Agreement

The Cyprus Ministry of External Affairs and Ministry of Finance have announced that the internal procedures required for the ratification of the DTAA with Latvia are completed and the DTAA are considered effective as of 1 January 2017.

The DTAA is based on the OECD (Organization for Economic Co-operation and Development) Model Convention and is expected to further improve the business cooperation between Cyprus and the Republic of Latvia. The ratification was well received by the local and foreign business communities and international investors and further enhances Cyprus’ position as an international business center, since some of their provisions are deemed to be significantly favorable. The DTAA 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

In cases where the beneficial owner of the dividend is a company (other than partnership), the withholding tax rate is set at 0%.  In all other cases the withholding tax rate is 10%.

Interest

The withholding tax rate on interest in cases where the beneficial owner of the interestis a company (other than partnership) isset at 0%.In all other cases the withholding tax rate is 10%.

Royalties

The withholding tax rate on royaltiesin cases where the beneficial owner of the royaltiesis a company (other than partnership) is set at 0%.In all other cases the withholding tax rate is 5%.

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 of Article 13 of the Cyprus-Russia Double Taxation agreement

The Ministry of Finance announced on 29.12.2016 that, an agreement has been reached between Russian and Cypriot authorities to suspend the application of the Protocol amending section 13 of the Agreement between the Republic of Cyprus and the Russian Federation for the avoidance of double taxation with respect to taxes on income and on Capital.

According to the provision of Article 13 gains derived by a resident of a Contracting State from the alienation of shares or similar rights deriving more than 50% of their value from immovable property situated in the other Contracting State may be taxed in that other State.

As per the announcement a new protocol is to be signed to implement the revised provisions of Article 13 until similar provisions are introduced in other bilateral agreements between Russian Federation and other European countries.

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.

This article has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this article. Reanda Cyprus Limited would be pleased to advise readers on how to apply the principles set out in this article to their specific circumstances. Reanda Cyprus Limited accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this article.