Following its emergence as an independent state, Slovenia adopted the double taxation agreement dated 29 June 1985 between the former Yugoslavia and Cyprus. A new double taxation agreement has now been agreed between Cyprus and Slovenia. It was signed on 12 October 2010 and will take effect when it has been formally ratified by both countries. Until then the existing 1985 treaty will continue in effect.
Withholding tax rates
The new treaty provides for a maximum rate of withholding tax of 5% on dividends, interest and royalties. While this is an improvement compared with the 1985 treaty, which provided for a 10% withholding tax on dividends, interest and royalties paid to Cyprus, it is not likely to have a major effect in practice since both Slovenia and Cyprus have implemented the EU Parent-Subsidiary Directive and the Interest and Royalties Directive, which means that a nil withholding tax rate will be available in most cases in any event.
Capital gains on disposal of shares in property-rich companies
The new treaty provides that capital gains on the disposal of shares in property-rich companies (companies which derive the majority of their value from immovable property situated in one of the contracting states) may be subjected to tax in the state where the immovable property is situated. The new treaty restricts this provision to the disposal of shares, and does not mention the disposal of other instruments. Other treaties based on the OECD Model tax convention provide for gains on shares "and other similar interests" in property-rich companies in the country where the property is located.
Profits from international shipping operations
The new treaty gives exclusive taxing rights over profits derived by an enterprise of a contracting state from ships operating in international traffic to the state of the enterprise. Both the 1985 treaty and the current OECD Model Convention give the exclusive taxing rights to the state in which the place of effective management of the enterprise is situated.
In practice this should not make a difference, since tax residence in both countries is based on the place of management and control.
Independent personal services
Since there is no longer an article dealing with independent personal services (it was removed from the OECD Model Convention some years ago), income derived from such services is no longer dealt with separately, but instead is included under the article on business profits.
Other amendments
The articles on mutual agreement procedures and exchange of information have been aligned with the equivalent provisions of the current OECD Model Convention and the obligations and powers of the contracting states have been clarified.
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.
