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On 22 March 2012 Poland and Cyprus signed a protocol amending
the Poland – Cyprus Double Tax Treaty.
Cyprus ratified the Protocol on 30 March 2012. The Protocol must
still be ratified by Poland as well, and until then the existing
DTT will apply.
The ratification by the Polish Parliament is expected to be
finalized later this year, thus the amendments to the DTT will most
likely come into force on 1 January 2013.
The main changes of the Polish – Cyprus DTT (the
existing agreement dates back to 1992) include:
1. Reduction on withholding tax on interest.
Currently, tax paid on interest paid in the source country is
restricted to a maximum of 10% of the gross amount of such payment.
The amendment introduced by the protocol results in the withholding
tax decreasing in such cases to a maximum 5 % the amount of
interest.
2. Reduction on withholding tax on dividend.
Currently, tax paid on dividend paid in the source country is
restricted to a maximum of 10% of the gross amount of such payment.
The amendment introduced by the Protocol results in the withholding
tax decreasing in such cases to a 0% if the owner is a company
(other than a partnership) that is resident in the other
contracting state and has directly held at least 10% of the capital
of the company that pays the dividends for an uninterrupted
24-month period. Otherwise, the tax will be reduced to 5%.
3. Amendment to the rules concerning avoidance of Double
Taxation.
The amount allowed as a deduction from tax on income or capital
gains in Poland will be based on the tax actually paid in Cyprus,
limited to the amount attributable to such income or capital gains
derived from Cyprus.
4. Removal of 'Tax Sparing' clause.
Under the existing DTT it is possible to decrease the effective
tax rate on dividends paid by a Cypriot company to its Polish
shareholders from 19% to 9%.
When the amendments introduced in the protocol come into force,
the dividend income received from Cyprus companies by Polish tax
residents shall be taxed in Poland at a standard rate of 19%.
5. 'Director's Fee' will be taxable in the state in
which the director is resident.
Under the existing DTT income of directors of Cypriot companies
who are not Cypriot tax residents is not subject to taxation,
whether in Cyprus or in Poland.
As a result of amendments introduced in the protocol, the income
of Polish tax resident individuals derived from their capacity as a
member of a Cypriot board of directors shall be fully taxable in
Poland (18 % - 32 %).
6. Special contribution for the Defence of the Republic will be
included in the new DTT.
7. Exchange of information - introduction of Article 27 of the
OECD Model.
The protocol replaces Article 27 of the existing agreement with
a new article, copy of the responding article of the OECD Model
Convention and supplements it with details of the information that
must be supplied by a state when making a request for information,
which must demonstrate the foreseeable relevance of the information
to the request. This provision prevents tax authorities from any
'fishing expeditions' and safeguards the interests of
taxpayers.
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.
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