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Cyprus’ Double Tax Treaty network has been extended with four new treaties becoming effective as of 1 January 2015. These are treaties with Iceland, Lithuania, Norway and Spain.
In addition, Cyprus also concluded new treaties with Switzerland and Guernsey in 2014. The new treaties will enter into force once both countries conclude their ratification procedures.
These new treaties are generally based on the OECD Model Tax Convention framework with a number of modifications.
Below you find a summary of the four new treaties which came into effect as from 1 January 2015.
Iceland
The Treaty applies to taxes on income as well as on gains from alienation of movable or immovable property. In the case of Iceland, the Treaty covers the income tax paid to the State and the income tax paid to municipalities, whereas in the case of Cyprus, it covers corporate and personal income tax, defense tax and capital gains tax.
The Treaty provides for 5% withholding tax on dividends where the beneficial owner is a company (other than partnership) which holds directly at least 10% of capital of the dividend paying company (10% withholding tax is levied in all other cases).
The Treaty provides for zero withholding tax on interest and 5% withholding tax on royalty payments.
The capital gains tax article allocates taxation rights to the source state for gains arising on the sale of shares in real estate rich companies (i.e. shares deriving more than 50% of their value from immovable property).
The Treaty between Cyprus and Iceland is effective as from 1 January 2015.
Lithuania
The Treaty applies to taxes on income as well as on gains from alienation of movable or immovable property. In the case of Lithuania, the Treaty covers the profit tax and income tax, whereas in the case of Cyprus, it covers corporate and personal income tax, defense tax and capital gains tax.
The Treaty provides for zero withholding tax on dividends where the beneficial owner is a company (other than partnership) which holds directly at least 10% of capital of the dividend paying company (5% withholding tax is levied in all other cases).
The Treaty provides for zero withholding tax on interest and 5% withholding tax on royalty payments.
Capital gains derived by a resident of Cyprus or Iceland are not taxable in the country of investment (except of gains relating to immovable property and gains from the alienation of movable property of a permanent establishment). In particular, any gains arising from the sale of shares will only be taxed in the country of residence of the seller of the shares.
The Treaty between Cyprus and Lithuania is effective as from 1 January 2015.
Norway
The Treaty replaces the 1955 United Kingdom-Norway agreement.
The Treaty applies to taxes on income as well as on gains from alienation of movable or immovable property. In the case of Norway, the Treaty covers the national tax on income, the county municipal tax on income, the municipal tax on income, the national tax relating to petroleum activities and the national tax on remuneration of non-resident artists. In the case of Cyprus, it covers corporate and personal income tax, the so-called Defense Tax and capital gains tax.
The Treaty provides for zero withholding tax on dividends where the beneficial owner is a company (other than partnership) which holds directly at least 10% of the dividend paying company (15% withholding tax is levied in all other cases). However, no withholding tax is levied on dividends derived by and beneficially owned by the Government of a Contracting State. The Treaty also provides for zero withholding tax on interest and royalty payments.
Capital gains derived by a resident of Cyprus or Norway are not taxable in the country of investment (except of gains relating to immovable property, gains from the alienation of movable property of a permanent establishment and gains from the alienation of containers used for transport solely between places within the source state). In particular, any gains arising from the sale of shares will only be taxed in the country of residence of the seller of the shares.
It is interesting to note that the Treaty contains special provisions (Article 20 Activities Outside the Coast) about taxation of income and gains derived from offshore activities in connection with the exploration or exploitation of the seabed or subsoil or natural resources.
The Treaty between Cyprus and Norway is effective as from 1 January 2015.
Spain
The Treaty applies to taxes on income as well as on gains from alienation of movable or immovable property. In the case of Spain, the Treaty covers the income tax on individuals, the corporation tax, the income tax on non-residents and capital tax. In the case of Cyprus, it covers personal and corporate income tax, defense tax, immovable property tax and capital gains tax.
The Treaty provides for zero withholding tax on dividends provided that the recipient of the income holds directly at least 10% of the capital of the company paying the dividends (5% in all other cases).
The Treaty also provides for zero withholding tax on interest and royalty payments.
The capital gains tax article allocates taxation rights to the source state for gains arising on the sale of shares in real estate rich companies (i.e. shares deriving more than 50% of their value from immovable property) not listed on the Stock Exchange of either Spain or Cyprus.
In the Protocol to the Treaty there is a special provision that the Treaty shall not be interpreted to mean that a Contracting State is prevented from applying its domestic legal provisions on the prevention of tax evasion or tax avoidance.
The Treaty between Cyprus and Spain is effective as from 1 January 2015 with respect to income and capital taxes and as from 28 May 2014 with respect to other taxes.
