Cyprus has concluded Double Taxation Avoidance Agreements (DTAAs) with Bahrain and Ethiopia. The treaty with Bahrain was ratified by Bahrain in March 2016 and entered into force on 26 April 2016. The treaty with Ethiopia was signed in Nicosia on 30 December 2015 and was published in the Official Gazette of the Republic of Cyprus on 18 January 2016.
The DTAAs, are based on the OECD Model Convention and will come into force as from the 1 January next forllowing the year in which each country completes the ratifications process.
The treaties sign off was well received by the business communities of the above mentioned countries and it further enhances Cyprus' position as an international business center, since some of its provisions are deemed to be significantly favorable.
The DTAAs main provisions are analyzed below:
Bahrain: The definition of "permanent establishment" also includes a building site or construction or installation project or any supervisory activities in connection with such site or project constitutes a permanent establishment only if it lasts more than 12 months (definition in compliance with OECD model).
Ethiopia: The definition of "permanent establishment" also includes a building site or construction or installation project or any supervisory activities in connection with such site or project constitutes a permanent establishment only if it lasts more than 6 months (definition in compliance with OECD model).
Bahrain: The withholding tax rate on dividend payments is set at 0%.
Ethiopia: The withholding tax rate on dividend payments is set at 5%
Bahrain: The withholding tax rate on interest is set at 0%.
Ethiopia: The withholding tax rate on dividend payments is set at 5%.
Bahrain: The withholding tax rate on royalties is set at 0%.
Ethiopia: The withholding tax rate on divident payment is set at 5%.
The DTAAs follow the OECD model in relation to gains arising from disposal of share and other movable or immovable properties. Capital gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State. Other capital gains form the alienation of any other property are taxable only in the residence State.
Additional important notes for tax planning:
- Cyprus unilaterally does not withhold taxes on outbound dividends and interest payments.
- The continuously expanded network of DTAAs Cyprus has signed off and ratified. The application of the EU Directives (Parent-Subsidiary and Interest - Royalties) increase international investors' options for channeling investments in the most tax efficient way.
- The Double Tax Avoidence Agreement between Cyprus and Switzerland which was signed on 25 July 2014 was entered into force on 1 January 2016 following the ratification of the bilateral agreement by the two countries.
- Cyprus has concluded and signed Protocal amending the Double Taxation Agreement (DTA) with Ukraine on 11 December 2015 and was published in the Official Gazette of the Republic on 23 December 2015. The provisions of the signed protocal will come into effect as of 1 January 2019 on the date when the existing Convention will expire.
For more information, you may contact:
Reanda Cyprus Limited
48 Archangelou Avenue, 1st Floor, Engomi CY-2404 Nicosia, Cyprus
Tel: +357 2267 0680
This newsletter has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this newsletter. Reanda Cyprus Limited would be pleased to advise readers on how to apply the principles set out in this newsletter to their specific circumstances. Reanda Cyprus Limited accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this newsletter.