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Cyprus updates its Double Tax Treaties with Luxembourg, Iran, India and Barbados

Cyprus economy and investment strategy is becoming stronger aiming to attract foreign investors in the island and gives excellent business opportunities to the business system worldwide. The Cyprus government continuous successfully working on the above situation by updating the existing Double Tax Treaties and signing new DTT with other countries too. 

Specifically, the Cyprus government during the previous period updated the existing Double Tax Treaties with Luxembourg, Iran, India and Barbados.

 

Luxembourg

The Double Tax Treaty between the two European countries was signed in May 2017. All legal formalities will be completed in the following months and will become into force from 1st January 2018.

It provides:

Dividends

a.

0% Withholding Tax if the beneficial owner of the dividends is a company (other than a partnership) that directly holds at least 10% of the capital of the payer company

 b.

5% Withholding Tax In other cases

Interest and Royalties

 a.

0% Withholding Tax

Capital gains

 a.

Cyprus retains the exclusive taxing rights on disposals of shares in Luxembourg companies except in those cases where more than 50% of the value of the shares is derived directly from immovable property situated in Luxembourg.

 

The DTT incorporates the Base Erosion and Profit Shifting (BEPS) project Action 6 report on ‘Principal Purpose Test’ (PPT). The PPT provides that a DTT benefit shall not be granted, under conditions, if obtaining that benefit was one of the principal purposes of an arrangement or transaction. This measure is designed to tackle “treaty shopping” and puts a strong emphasis on ensuring that operations are supported by appropriate substance and reflect a principal commercial rationale.

For collective investment vehicles (CIVs) the accompanying Protocol to the DTT provides that, under conditions, exempt CIVs are to be considered as residents of a contracting state if they are considered as residents by the local law of that state, and as the beneficial owners of the income the CIV receives.
Iran

The Double Tax Treaty between Cyprus and Iran was signed in August 2015 and entered into force in March 2017, while its provisions will come into effect as from 1st January 2018.

It is based on the OECD Model Convection and its main provisions are the following:

Dividend: if the recipient is the beneficial owner of the dividends the WHT shall not exceed

a.

5% of the gross dividend amount if the beneficial owner is a company which holds directly at least 25% of the capital of the company paying the dividends;

b.

10% of the gross dividend amount in all other cases.

Interest: if the recipient is the beneficial owner of the interest

a.

The WHT shall not exceed 5% of the gross interest amount

Royalties: if the recipient is the beneficial owner of the royalty

a.

The WHT shall not exceed 6% of the gross royalty amount.

Capital gains

a.

Gains derived by a resident of a Contracting State from the disposal of immovable property situated in the other Contracting State may be taxed in that other State.

b.

Gains derived by a resident of a Contracting State from the disposal of shares in a company, deriving more than 50% of their value directly from immovable property situated in the other Contracting State may be taxed in that other State.

 

India

Cyprus and India signed the revised Double Tax Treaty in November 2016 and became into force in India as from 1 April 2017. On 21st April 2017, the government of India has clarified that the rescission of Cyprus as Notified Jurisdictional Area (NJA) is retrospective from year 2013.
 

Dividends:

a.

10%, but actually neither country currently imposes WHT on dividends.

Interest:

a.

10% unless the beneficial owner of the interest is the government, a political sub-division, a local authority of the other contracting state, certain Indian institutions defined in the treaty or any other institution as may be agreed upon between the competent authorities of the contracting states in which case the WHT will be reduced to 0%.

Royalties:

a.

10%, reduced from 15% under the current DTT.

Capital gains

a.

It provides for source-based taxation of capital gains arising from the alienation of a company’s shares. Investments undertaken before 1 April 2017 will be grandfathered, with taxation rights over gains on the disposal of such shares at any future date remaining solely with the state of residence of the alienator.

b.

Gains derived by a resident of a Contracting State from the disposal of shares in a company, deriving more than 50% of their value directly from immovable property situated in the other Contracting State may be taxed in that other State.

 

Barbados

The DTT was signed in May 2017, based on the OECD Model Convention and it is expected to come into force from 1st January 2018.

Dividends:

a.

0%  Withholding Tax

Interest:

a.

0% Withholding Tax

Royalties:

a.

0% Withholding Tax

Capital gains

a.

Gains from the disposal of immovable property are taxed in the country where the immovable property is situated. 
b. Capital gains arising from the disposal of shares deriving more than 50% of their value directly or indirectly from immovable property in the other Contracting State may be taxed in that other State.
c. Other capital gains from the alienation of any other property are taxable only in the place of residence of the alienator.

 

Cyprus has created a strong Network by signing Double Tax Treaties and agreements with other countries, attracting business parties from all over the globe to invest in Cyprus and gives excellent business and investment opportunities.

Globalserve Consultants Ltd, based on its long experience is able to assist you and offer you a full range of professional services aiming your business success, combining company formation in more than 15 countries, bank account opening in banks in Europe and Asia including support needed as well as secretarial support.

You can contact us for further information or send us your question at the below e-mail.

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