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On 1 June 2021 Cyprus and the Netherlands signed their first Double Taxation Avoidance Agreement (DTAA), which will be in force as soon as various ratification procedures are completed.
The DTTA is based on the Organization for Economic Co-operation and Development (OECD) Model Tax Convention and its main provisions are briefly described below:
Dividends
A 0% withholding tax (WHT) rate applies where the beneficial owner (BO) is:
(a) a company that holds directly at least 5% of the capital of the company paying the dividends, throughout a 365-day period including the payment day.
(b) a recognised pension fund which is generally exempt under the corporate income tax law of Cyprus.
For any other case, the WHT shall not exceed a 15% rate on gross dividends.
Interest
A 0% WHT rate applies if the recipient is the BO of the income.
Royalties
A 0% WHT rate applies if the recipient is the BO of the income.
Capital Gains
Gains from the disposal of immovable property are taxable at the country where the property is situated.
Gains from the disposal of movable property which is part of the ownership of a permanent establishment are taxable at the country where the permanent establishment is based.
Gains from the disposal of ships and aircrafts used in international aviation are taxable at the country where the real seat of the owning company is situated.
Cyprus retains the exclusive taxing rights on gains arising from disposals of shares made by Cyprus tax residents, except where:
(a) the shares are non-listed and derive more than 50% of their value, directly or indirectly, from immovable property located in the Netherlands.
(b) the shares are non-listed and derive more than 50% of their value, directly or indirectly, from certain offshore rights/property relating to exploration or exploitation of the seabed or subsoil or their natural resources located in the Netherlands or technical equipment, or other similar property located in the Netherlands and directly used in offshore activities.
Entitlement to benefits
A benefit under the DTTA shall not be granted, in respect of an item of income or capital, if it is 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.
