On 08 November 2012, Cyprus and Ukraine signed, after long negotiations, a new bilateral tax agreement for the avoidance of double taxation and the prevention of fiscal evasion that when in force will replace the existing Tax Bilateral tax agreement between the two States.
The new bilateral tax agreement between Cyprus and Ukraine will still allow Cyprus Companies to continue to serve as an investment vehicles for investment in Ukraine.
The main provisions of the new bilateral tax agreement can be summarized as follows:
- Withholding tax on dividend payments: A reduced withholding tax on dividends of 5% is granted, where the company receiving the dividend owns at least 20% in the capital of the paying company or it has invested an amount of at least €100.000. In all other cases a withholding of 15% will be applicable.
- Withholding tax on interest payments: A reduced withholding tax of 2% on interest payments, e.g. under a loan between an Ukrainian company and a Cyprus company, will apply under the new Bilateral tax agreement.
- Withholding tax on royalty payments: A reduced 5% withholding tax in respect of the use or the right to use of any intellectual property right concerning industrial, commercial or scientific experience will be apply under the new Bilateral tax agreement. In all other cases a general withholding tax on royalties of 10% will apply.
- Capital Gains: Under the provisions of the new Bilateral tax agreement any gains from the sale of shares, will only be taxed in the country of residence of the seller of the shares, even in the case where the assets of the company derive their value wholly from real estate.
- Exchange of Information: The new Bilateral tax agreement adopts Article 26 of the OECD Model Tax Convention on the exchange of information. Still, the taxpayers are afforded the maximum protection against the possible misuse of the clause.
The new bilateral tax agreement will come into effect once the ratification procedure is completed by both Cyprus and Ukraine. If this procedure is completed before 31 December 2012, it would apply from 01 January 2013. Otherwise, the entry into effect will be postponed until 01 January 2014.
This new bilateral tax agreement will continue to serve Cyprus investment route to Ukraine as the new bilateral tax agreement between Cyprus and Ukraine contains certain beneficial provisions which add to the existing favorable provisions of the Cyprus corporate taxation including: the 10% corporate tax rate, zero taxation of the profits from the sale of shares and other securities, no withholding tax on dividends etc.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.