Cyprus and Andorra have on 18 May 2018 signed a Double Tax Treaty (the “DTT
”) which will enhance the economic and trade relations between the two countries. The DTT will become effective on or after 1 January of the year following that in which all legal procedures are completed for the DTT to enter into force.
The DTT is generally based on the OECD Model Tax Convention framework.
The DTT provides for 0% withholding tax
and royalty payments
With respect to capital gains
arising from the sale of shares in Andorra companies by Cyprus tax residents, the DTT provides that the exclusive taxing right remains with the alienator i.e. Cyprus. However, this is not the case where more than 50% of the value of the shares arises directly or indirectly from immovable property situated in Andorra. However, this exception does not apply to gains derived from the alienation of shares of a company listed on a recognized stock exchange of one or both contracting states or a European Union or European Economic Area Member State, where the alienator at all times during the 12-month period preceding such alienation held directly or indirectly not more than 25% of the capital of the company whose shares are alienated.
The DTT includes a Limitation of Benefits clause in accordance with the OECD/G20 Base Erosion and Profit Shifting project Action 6 report “Principal Purpose Test” which is a minimum standard and provides that a double tax treaty benefit shall not be granted in the instance where the obtaining of that benefit was one of the principal purposes of the arrangement or transaction.
The full text of the DTT and the protocol can be found here