The Double Tax Treaty (the “DTT”) between Cyprus and Luxembourg that was signed in May 2017 has been ratified by Cyprus at the end of 2017. 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 Convention for the Avoidance of Double Taxation on Income and on Capital and aims at the elimination of double taxation with respect to taxes on income and capital and the prevention of tax evasion and avoidance.
 
The main provisions of the DTT are briefly outlined below:
 
The DTT provides for 0% withholding tax on dividends if the beneficial owner of the dividends (other than a partnership) holds directly at least 10% of the capital of the company paying the dividends. In all other cases, a 5% withholding tax applies.
 
With respect to interest and royalty payments, a 0% withholding tax applies.
 
With respect to capital gains arising from the sale of shares in Luxembourg 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 from immovable property situated in Luxembourg.
 
The full text of the DTT and protocol can be found here.