Cyprus – UK/Cyprus Double Taxation Convention
On 19 December 2018, the Cyprus Minister of Finance, Harris Georgiades and the British High Commissioner to Cyprus, Stephen Lillie, signed a protocol amending the Convention for the Elimination of Double Taxation between Cyprus and the United Kingdom the (“Protocol”), with respect to taxes on income, capital gains, and the prevention of tax evasion and avoidance.
Pursuant to the Protocol each of the Contracting States shall notify the other, in writing, through diplomatic channels, of the completion of the procedures required by its laws for the bringing into force of this Protocol. This Protocol shall enter into force on the date of the later of these notifications and shall thereupon have effect:
(a) in Cyprus: (i) in respect of taxes withheld at source, for amounts paid or credited on or after the 1st January 2019; and (ii) in respect of other taxes, for taxable years beginning on or after 1st January 2019.
(b) in the United Kingdom: (i) in respect of taxes withheld at source, for amounts paid or credited on or after 1st January 2019; (ii) in respect of income tax, for any year of assessment beginning on or after 6th April 2019.
The taxes to be covered in the Republic of Cyprus:
(i) the income tax;
(ii) the corporate income tax;
(iii) the special contribution for the Defence of the Republic; and
(iv) the capital gains tax.
Withholding Tax Rates
The treaty provides for zero withholding taxes on dividends in case the recipient is the beneficial owner of the income, except where dividends are paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax, in which case a withholding tax of 15% applies (other than where the beneficial owner of the dividends is a pension scheme established in the other Contracting State). There is no withholding tax on interest and royalty payments, as long as the recipient of the interest or royalties is the beneficial owner of the income. Gains from the sale of property of the companies are taxed in the country where the property is located (except for shares of companies traded on a stock exchange).
Limitation of Benefits Provision
There is a limitation of benefits provision under the treaty, which provides that no benefit will be granted in respect of an item of income or a capital gain if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit.
Determination of Tax Residency of Companies
In determining the residence of a person, the competent authorities shall have regard to:
i) where the senior management of the person is carried on;
ii) where the meetings of the board of directors or equivalent body are held;
iii) where the person’s headquarters are located;
iv) the extent and nature of the economic nexus of the person to each State; and
v) whether determining that the person is a resident of one of the Contracting States but not of the other State for the purposes of the Convention would carry the risk of an improper use of the Convention or inappropriate application of the domestic law of either State.
Although this list of factors is not exhaustive, in the absence of the factor v) above the list of factors at i) to iv) above will generally be determinative.
For further information on this topic please contact
Mrs. Liza Bokova( email@example.com) at SOTERIS PITTAS & CO LLC,
by telephone (+357 25 028460) or by fax (+357 25 028461)
The content of this article is intended to provide a general guide to the subject matter. Specialist advise should be sought about your specific circumstances.