On the 7th of June 2017 Cyprus signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”). The MLI will implement tax treaty measures in order to reduce opportunities for tax avoidance by multinational companies.
Article 6 and 7 as the main impact on Cyprus Companies
The main impact on Cyprus companies will be Article 6 and 7 which relate to treaty abuse. As a result, Cyprus will implement in its double tax treaties principle purpose test (PPT) and a limitation of benefit clause (LoB). Consequently, it is essential that Cyprus companies owners examine the impact of these changes and ensure that they have sufficient substance in Cyprus. Failure to do so could lead to significant tax implications.
The treaty, based on the OECD model treaty, provides for the following maximum withholding tax rates on dividends, interest and royalty payments:
- Dividends: No withholding tax on dividends paid to a company that holds directly at least 10% of the capital of the dividend paying company.
Otherwise, the rate will be 5%. - Interest and royalties: No withholding tax on interest and royalties paid to a resident of the other contracting state.
Who does the tax treaty apply to?
For the purposes of the treaty, a collective investment vehicle will be considered a resident of a contracting state if, under the domestic law of that state, it is liable to tax therein by reason of its domicile, residence, place of management or any other criterion of a similar nature. Collective investment vehicle will be considered as liable to tax if it is subject to the tax laws of that contracting state irrespective if it is exempt from tax.
The treaty also includes provisions for the exchange of financial and other information. The treaty will enter into force after formal ratification and with respect to taxes will have effect on or after 1 January following the date the treaty enters into force.
On the 3rd of May 2017 Cyprus signed double tax treaty with Barbados.
Nil withholding tax on dividends, interest and royalty payments
The treaty is based on the OECD Model Convention and provides nil withholding tax on dividends, interest and royalty payments. The treaty will enter into force after formal ratification and with respect to taxes will have effect on or after 1st January following the date the treaty enters into force.
The Double Tax Treaty (DDT) between The Republic of Cyprus and the Kingdom of Bahrain entered into force in January 2017. The DTT is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and Capital with the aim to help attract foreign direct investment to Cyprus.
Cyprus as an attractive location for foreign Investment
The aim of the agreement was to enhance and increase the trading aspect and attract foreign investment for Cyprus to be promoted as an international business center which will provide further growth.
Cyprus and Brahrain Taxes
Cyprus taxes include:
- Income tax.
- Corporate Income Tax.
- Special contribution of defence.
- Capital Gain Tax.
Bahrain tax includes:
- The Tax Oil Tax.
Provisions of the Treaty
The important provisions of the treaty are:
- No withholding taxes on payments of dividends.
- No withholding taxes on payment of interest.
- No withholding taxes on payment of royalties.
- For capital gain tax, the profits will be taxed in the country that the property is situated.
- If a project is concluded in more than 12 months (a project being a building site/ construction/ installation of a project or any other related project) then this will be considered as a permanent establishment.
- Business profits will be taxable in the country that the Company resides.
Contact
Chloe Ralli
General Manager
chloe.ralli@whitenovember.com
Tel: + 357 2200 7940
On 13th April 2017, the Parliament of Ukraine approved the Convention and Protocol between Ukraine and Malta on “Avoidance of Double taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income”, signed in Kyiv on 4th September 2013.
The Convention provides the following rates of taxation in line with the OECD Model Tax Convention:
- Dividends – 15% or 5%: reduced tax rate applies if the dividend recipient owns at least 20% of the capital of the dividend paying company
- Interest and Royalties – 10%
The President of Ukraine shall be signing the Convention and Protocol, whilst enforcement shall enter into force after a mutual notifications by both states.
Contact us
Amy Fenech Zarb
Senior Corporate Administrator
amy.fenech.zarb@whitenovember.com
+356 2010 4000
The Cyprus Tax Authority decided to change the current tax regime in relation to profit margins and loans between related parties.
Whom does the change apply to?
From the 1st of July 2017 all loans between Cyprus Tax Resident Companies and their related parties shall be supported by transfer pricing studies prepared by an independent expert and based on OECD principals. The new rule will affect financial transactions between related companies with regards to tax assessment and tax ruling.
The Ministry of Finance in Cyprus announced, in agreement with Russian Government, to abolish the introduction of source-based taxation of capital gains on disposal of shares in property-rich companies.
Disposals of shares in property-rich companies will continue to be taxable only in the country of residence of the person disposing of the shares. This means that gains on disposals of shares will continue to be tax free.
