New Double Tax Treaties

In its efforts to make the Republic of Cyprus (“Cyprus”) a more attractive jurisdiction for international business as well as to maintain and empower the economic and commercial relations of Cyprus with other countries, Cyprus has recently initialed a convention for the avoidance of double taxation (“DTA”) with the following country:

The Republic of Poland (“Poland”)

(1) On 22 March 2012, Cyprus signed a protocol (the “Poland Protocol”) amending the DTA between Cyprus and Poland dated 04 June, 1992 (the “Old Poland Treaty”). The Poland Protocol was initialed on May 12, 2011.

(2) The main provisions of the Poland Protocol are as follows:

(a) Dividends have been reduced from 10% to 0% provided that the beneficial owner is a company which holds directly at least 10% of the capital of the company paying the dividends for an uninterrupted period of 2 years or 5% in all other cases.

(b) Interest has been reduced from 10% to 5%

(c) Royalty has remained unchanged at 5%.

(d) The Poland Protocol retains the provision whereby gains from the sale of shares will only be taxed in the state of residence of the seller of the shares, even in the case where the assets of the company constitute of real estate.

(3) Cyprus ratified the Poland Protocol on March 30, 2012. The Poland Protocol will be effective once is ratified by Poland as well and until then the Old Poland Treaty applies.

In its efforts to make the Republic of Cyprus (“Cyprus”) a more attractive jurisdiction for international business as well as to maintain and empower the economic and commercial relations of Cyprus with other countries, Cyprus has recently initialed a convention for the avoidance of double taxation (“DTA”) with the following country:-

The Republic of Estonia (“Estonia”)

(1) On 16 February, 2011, Cyprus initialed a DTA convention with Estonia (the “Estonia Convention”). We note that following the demise of the Soviet Union the former Cyprus-USSR DTA convention was not applied by Estonia. In this respect, the Estonia Convention is the first DTA ever concluded between the two states.

(2) Details of the Estonia Convention have not been made public yet.

(3) The Estonia Convention will be effective once (a) it is signed and (b) the respective internal ratification procedures are completed.

In its efforts to make the Republic of Cyprus (“Cyprus”) a more attractive jurisdiction for international business as well as to maintain and empower the economic and commercial relations of Cyprus with other countries, Cyprus has recently signed a convention for the avoidance of double taxation (“DTA”) with the following country:-

United Arab Emirates (“UAE”)

(1) On 28 February, 2011, Cyprus signed a DTA convention with the UAE (the “UAE Convention”).

(2) In summary, the withholding taxes under the UAE Convention are as follows:-

(a) Dividends: Nil

(b) Interest: Nil

(c) Royalties: Nil

(3) The UAE Convention was ratified by the Cyprus House of Representatives on 05 September 2011. UAE’s respective internal ratification procedures have not been completed yet.

In its efforts to make the Republic of Cyprus (“Cyprus”) a more attractive jurisdiction for international business as well as to maintain and empower the economic and commercial relations of Cyprus with other countries, Cyprus has recently signed a further convention for the avoidance of double taxation (“DTA”) with the following country:-

The Republic of Slovenia (“Slovenia”)

(1) On 12 October, 2010, Cyprus signed a DTA convention with Slovenia (the “Slovenia Convention”) to replace the old DTA convention between Cyprus and the former Socialist Federal Republic of Yugoslavia which has been in effect since 1986 (“Old Yugoslavian Convention”).

(2) In summary, the withholding taxes under the Slovenia Convention are as follows:-

(a) Dividends: 5%.

(b) Interest: 5%

(c) Royalties: 5%

(3) The New Slovenia Convention came into force on 01 January 2012 and replaced the Old Yugoslavian Convention.

In its efforts to make the Republic of Cyprus (“Cyprus”) a more attractive jurisdiction for international business as well as to maintain and empower the economic and commercial relations of Cyprus with other countries, Cyprus has recently signed a further convention for the avoidance of double taxation (“DTA”) with the following country:-

The Czech Republic

(1) On 28 April, 2009, Cyprus signed a DTA convention with the Czech Republic (the “New Treaty”) to replace the agreement between Cyprus and the former Czechoslovak Socialist Republic signed on 15 April, 1980 (the “Old Treaty”).

(2) The New Treaty was ratified by the House of Representatives of Cyprus on 13 November, 2009, and is effective as of 01 January, 2010.

(3) The main amendments concern the tax treatment of the following:-

(a) capital gains,

(b) dividends,

(c) interest and,

(d) royalties.

(I). Capital Gains

(1) The treatment of capital gains has been significantly amended.

(2) The New Treaty maintains the familiar tax rule that the right to tax income from the alienation of shares is conferred to the country of residence of the seller, noting however, that this has been changed in certain cases.

(3) Thus, capital gains derived from the disposal of shares in a company holding property will be taxed in the country where such property is located.

(4) Accordingly, the new Article 13, indicates that gains realized by a resident of one contracting state from the disposal of shares deriving more than 50% of their value from immovable property situated in the other contracting state may be taxed in that other state.





(II). Dividends

(1) Article 10 of the Old Treaty provided for a 10% withholding tax on dividends paid by a company resident in one country to an investor resident in the other country.

(2) Article 10 of the New Treaty, provides that a 0% withholding tax will be imposed on the dividends if the beneficial owner of the said dividends (the “Owner”) satisfies the following 3 criteria:-

(a) the Owner is a company (partnerships are thus expressly excluded),

(b) the Owner holds at least 10% of the share capital of the company where dividends have derived therefrom and

(c) the Owner holds his ownership interest as per (b) above for an uninterrupted period of at least 1 year.

(3) If the conditions in (2) above are not satisfied, the withholding tax will be 5%.

(III). Interest

(1) Article 11 of the Old Treaty provided for a 10% withholding tax on interest paid by a resident of one country to a resident of the other country.

(2) Article 11 of the New Treaty, eliminates the withholding tax at source and provides that interest will be taxed only in the recipient's country of residence.

(IV). Royalties

(1) Article 11 of the Old Treaty imposed a 5% withholding tax for the use of or the right to use of any patent, trade mark, design or model, computer software and other intellectual property rights.

(2) Article 12 of the New Treaty increases this tax to 10%.

(3) It should be noted that pursuant to a protocol signed on 28 April, 2009 between the Czech Republic and Cyprus, the former pledged that in the case that it signs with any other EU member State an agreement which will limit the taxation of royalties arising in the Czech Republic to a rate effectively lower, than the provided for in paragraph (2) above, then that lower rate will automatically be applicable for the purposes of Article 12 of the New Treaty.

(V). Permanent establishment

(1) Article 5 of the New Treaty significantly expands the definition of a “permanent establishment” to include that a permanent establishment will be deemed to exist if services are provided in the territory of the other contracting state for any period exceeding 6 months in any 12-month period.

(VI). Method of eliminating double taxation

(1) The Old Treaty entitled the then former Czechoslovakia to use either the credit method or the exemption method.

(2) Article 21 of the New Treaty allows the use of only the credit method to reduce double taxation.

(VII). Limitation of benefits

(1) Under the New Treaty, the authorities of the contracting states may, by mutual agreement, deny treaty benefits if they conclude that the basic objective of a given transaction is to obtain benefits that would not otherwise be available.

In its efforts to make the Republic of Cyprus (“Cyprus”) a more attractive jurisdiction for international business as well as to maintain and empower the economic and commercial relations of Cyprus with other countries, Cyprus has recently signed a convention for the avoidance of double taxation (“DTA”) with the following country:-

The State of Qatar (“Qatar”)

(1) On 11 November 2008, Cyprus signed a DTA convention with Qatar (the “Qatar Convention”) and ratified in March 2009. As per Circular No. 2010/1 of the Cyprus Inland Revenue issued on 22 January 2010, the Qatar Convention is effective as of 01 January 2010.

(2) In summary, the withholding taxes under the Qatar Convention are as follows:-

(a) Dividends: Nil

(b) Interest: Nil

(c) Royalties: 5%

(3) It is noted that the royalty rate in paragraph (2)(c) above is only relevant for payments made from Qatar to Cyprus. According to Cyprus legislation there is no withholding tax on payment of royalties when these are distributed out of Cyprus provided that the:-

(a) beneficial owner is not a Cyprus resident and

(b) intellectual property right is used outside of Cyprus.

In its efforts to make the Republic of Cyprus (“Cyprus”) a more attractive jurisdiction for international business as well as to maintain and empower the economic and commercial relations of Cyprus with other countries, Cyprus has recently signed a further convention for the avoidance of double taxation (“DTA”) with the following country:

Federal Republic of Germany (“Germany”)

(1) On 18 February, 2011, Cyprus signed a DTA convention with Germany (the “New Germany Convention”) to replace the existing DTA convention between Cyprus and the former Republic of West Germany which has been in effect since 1977 (the “Old Germany Convention”).

(2) In summary, the withholding taxes under the New Germany Convention are as follows:


(a) Dividends: 5% provided that the recipient is the direct beneficial owner of 10% of the paying company's capital. If the foregoing condition is not satisfied, the withholding tax will be 15%.

(b) Interest: Nil

(c) Royalties: Nil

(3) The New Germany Convention abolishes Article 8(3) of the Old Germany Convention, which provided certain criteria were met enabled Germany to tax the profits from the operation of ships in international traffic derived by a Cyprus-resident company or partnership more than 25% of the capital of which was owned directly or indirectly by non-Cyprus residents.

(4) The protocol appended to the New Germany Convention clarifies that the profits from the operation of ships include profits of enterprises which perform the different tasks of operating a ship for the shipping enterprises, such as crewing, technical and commercial management. In other words, for the purposes of Article 8 of the New Germany Convention, thirdparty ship management companies fall within the ambit of “profits from the operation of ships”.

(5) The New Germany Convention came into force on 16 December 2011 and replaced the Old Germany Convention. Its provisions apply as of 01 January 2012.

In its efforts to make the Republic of Cyprus (“Cyprus”) a more attractive jurisdiction for international business as well as to maintain and empower the economic and commercial relations of Cyprus with other countries, Cyprus has recently signed a further convention for the avoidance of double taxation (“DTA”) with the following country:-

The State of Kuwait (“Kuwait”)

(1) On 05 October, 2010, Cyprus signed a DTA convention with the Kuwait (the “New Kuwait Convention”) to replace the old DTA convention between Cyprus and Kuwait which has been in effect since 1986 (“Old Kuwait Convention”).

(2) In summary, the withholding taxes under the New Kuwait Convention are as follows:-

(a) Dividends: Nil

(b) Interest: Nil

(c) Royalties: 5%

(3) The New Kuwait Convention was ratified by the Cyprus House of Representatives on 05 September 2011. Kuwait’s respective internal ratification procedures have not been completed yet and in that regard the Old Kuwait Convention applies.

In its efforts to make the Republic of Cyprus (“Cyprus”) a more attractive jurisdiction for international business as well as to maintain and empower the economic and commercial relations of Cyprus with other countries, Cyprus has recently signed a further convention for the avoidance of double taxation (“DTA”) with the following country:-

The Republic of Armenia (“Armenia”)

(1) On 17 January, 2011, Cyprus signed a DTA convention with Armenia (the “Armenia Convention”) to replace the existing DTA convention between the countries. We note that following the demise of the Soviet Union the former Cyprus-USSR DTA convention continued to be honoured by both countries.

(2) In summary, the withholding taxes under the Armenia Convention are as follows:-

(a) Dividends: 0% if the beneficial owner has invested in the capital of the company not less than EURO €150,000 at the time of the investment and 5% in all other cases.

(b) Interest: 5%

(c) Royalties: 5%

(3) The Armenia Convention was ratified by the Cyprus House of Representatives on 05 September 2011. Armenia’s respective internal ratification procedures have not been completed yet and until then the former Cyprus- USSR DTA applies.

In its efforts to make the Republic of Cyprus (“Cyprus”) a more attractive jurisdiction for international business as well as to maintain and empower the economic and commercial relations of Cyprus with other countries, Cyprus has recently signed a further convention for the avoidance of double taxation (“DTA”) with the following country:-

The Kingdom of Denmark (“Denmark”)

(1) On 11 October, 2010, Cyprus signed a DTA convention with Denmark (the “New Denmark Convention”) to replace the old DTA convention between Cyprus and Denmark which has been in effect since 1981 (“Old Denmark Convention”).

(2) In summary, the withholding taxes under the New Denmark Convention are as follows:-

(a) Dividends: Nil. Provided that the beneficial owner of the dividend being (i) a company (ii) holding directly 10% of the capital of the company issuing the dividend for an uninterrupted period of one year. If the foregoing conditions are not satisfied, the withholding tax will be 15%

(b) Interest: Nil

(c) Royalties: Nil

(3) The New Denmark Convention came into force on 07 September 2011 and replaced the Old Denmark Convention.