Cyprus: Cyprus-Iran Double Taxation Treaty August 2015

Cyprus on the 4^th of August 2015 has come to an agreement signing a Double Taxation Treaty with Iran.

Signing this treaty, Cyprus finds itself in a very promising position in terms of investments going into Iran but also regarding investments coming from Iran. The Treaty is based upon the OECD model tax convention and aims to alleviate the harmful effects of double taxation and promote international exchange of goods and services between the contracting states along with cross border movement of capital, persons and technology.

The main provisions of the Treaty are listed below:

1. Permanent Establishment:

The definition of Permanent Establishment is included in the treaty and is based according the OECD model convention. In that respect, a building site, a construction, assembly or installation project or supervisory activities in connection therewith, constitutes a 'permanent establishment' only if it lasts more than 12 months.

2. Dividends:

Withholding tax will be limited to 5% of the gross amount of dividends if the beneficial owner is a company which holds at least 25% of the capital of the company paying the dividends.

Furthermore, in all other cases the withholding tax will not exceed 10% of the gross amount of the dividends.

3. Interests:

Withholding tax will be limited to 5% of the gross amount of interest, given that the recipient is the beneficial owner of the interest.

4. Royalties:

Withholding tax will be limited to 6% of the gross amount of royalties given that the recipient is the beneficial owner of the royalties.

5. Capital Gains:

Capital gains arising from the disposal of immovable property situated in the other contracting State shall be taxed according to that State and no tax will arise for the other contracting State.

In addition, gains coming 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 avoidance of double taxation with Iran is a very important step for Cyprus and is expected to solidify and further develop economic and political relations between the two Countries. This Treaty will finally come into force once the ratification process is complete in January 2016.

Originally published February 25, 2015

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