Cyprus: Recent Developments In Cyprus DTT Network

Cyprus- Bahrain (DTT signed in March 2015)

In pursuit of strengthening the ties with all Gulf countries, on 9 March, 2015 Cyprus and Bahrain signed a Double Tax Treaty agreement.

The agreement is expected to contribute to further development of trade and economic relations between Cyprus and Bahrain.

Besides the DTT, a series of other agreements were also signed on such issues as terrorism and crime, aviation services and health.

The agreement applies to taxes on income imposed by either country and in Cyprus they are (i) income tax, (ii) corporate income tax, (iii) SDC tax and (iv) capital gains tax.

DTT updates an existing protocol and expands the network of similar deals based on the OECD Model Tax Convention and it is hoped to boost foreign direct investments to Cyprus.

Cyprus –South Africa (DTT signed in April 2015)

A Protocol amending the Double Tax Treaty between Cyprus and South Africa was signed on 1 April 2015. The Double tax treaty is based on the OECD Model.

DTT introduced a 5% withholding tax on dividends has been in, which is paid if the beneficial owner of the dividends is a company holding at least 10% of the capital of the company, which is paying the dividend. In all other cases the rate is 10% and it works retroactively to 1 April 2012, when South Africa introduced the taxation of dividends in the hands of the shareholders.

The amending protocol aimed to provide favorable tax framework for investors, enhances the exchange of information between the two countries, thus furthering and enhancing the growth of business opportunities between two countries.

Cyprus – Georgia (DTT signed in April 2015, expected to come into force on 1^st January 2016)

On 2 April 2015, a DTT has been signed between Cyprus and Georgia.

The agreement is expected to come into force on 1 January 2016 when both countries are expected to complete the ratifications procedures.

The DTT applies to taxes on income as well as on gains from alienations of immovable property. In the case of Georgia, income tax, property tax and profits tax are covered by the Treaty while in the case of Cyprus, personal income tax, defence tax, capital gains tax and immovable property are covered.

Double Tax Treaty between the countries provides for zero withholding tax on dividends, interest and royalty payments. The DTT is expected to strengthen the economic relations between Cyprus and Georgia and promote inbound and outbound investments

Cyprus-Iran (DTT signed in August, expected to come into force on 1^st January 2016)

On 4 August, 2015 Cyprus and Iran signed a Double Tax Treaty agreement during an official visit of the Iranian Deputy Finance Minister in Cyprus that is believed to pave the way for the expansion of business and investment opportunities between Iran and Cyprus.

The DTT agreement came three weeks after world powers reached a deal on Iran`s nuclear activity to gradually lift international sanctions.

The new agreement opens up new opportunities for the expansion and upgrading of the Cyprus network of Double Taxation Agreements and is of high economic and political importance and aims to further strengthen and attract foreign investment and elevates the importance of Cyprus as an international business center.

Summarizing:

1)      Dividends. 5% withholding tax on dividends paid, if the beneficial owner of the dividends is a company holding at least 25% of the capital of the company paying the dividend, in all other cases 10%;

2)      Interest. 5% withholding tax;

3)      Royalties. 6% withholding tax;

4)      Capital Gains. Gains from the disposal of immovable property may be taxed in the country where the immovable property is situated. Gains from the disposal of shares, deriving more than 50% of their value directly or indirectly from immovable property may be taxed in the country in which the immovable property is situated.

The DTT is based on the OECD Model and is expected to enter into force on the 1st of January 2016, following the date of the ratification by both countries.

*For more detailed account of DTT treaties concluded with Cyprus, please see attached Annex.

Cyprus Tax Treaty Partners

Source – Ministry of Finance of the Republic of Cyprus

*7 Denmark - The existing Convention shall cease to have effect as from 1.1.2012

* The treaty between Cyprus and the Socialist Federal Republic of Yugoslavia is still in force.

** The treaty between Cyprus and the Czechoslovak Socialist Republic is still in force

***The treaty between Cyprus and the Union of Soviet Socialist Republics is still in force.

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