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Cyprus expands treaty network as of 1 January 2019

Executive summary

Cyprus’ Double Tax Treaty network has expanded for 2019 with a new Treaty with Luxembourg becoming effective as of 1 January 2019 and a new Treaty with the United Kingdom (UK), which replaces the previous Treaty signed in 1974. Moreover, two protocols for amending the existing treaties with Mauritius and San Marino are also now effective.

This Alert summarizes the key provisions of the new treaties and amending protocols in effect as of 1 January 2019.

Detailed discussion

Treaty with Luxembourg

The Treaty provides for 0% withholding tax on dividends if the beneficial owner is a company (other than a partnership) which directly holds at least 10% of the capital of the company paying the dividends. In all other cases, the withholding tax rate is 5% of the gross amount of the dividends paid.

The Treaty provides for no withholding tax on interest and royalties.

Capital gains derived by a resident of Cyprus or Luxembourg are not taxable in the country of investment (except for gains relating to immovable property and gains from the alienation of movable property of a permanent establishment). Any capital gains arising from the sale of shares in real estate rich companies (i.e., shares deriving more than 50% of their value directly from immovable property) will only be taxed in the source state.

The Treaty also includes an article on taxation of offshore activities which overrides any other provisions of the Treaty.

The Treaty between Cyprus and Luxembourg is effective as from 1 January 2019 for both Cyprus and Luxembourg with respect to all taxes covered by the Treaty.

New Treaty with the UK

In general, the Treaty provides for 0% withholding tax on dividends. However, a 15% withholding tax is imposed on dividends paid out of income or gains derived directly or indirectly from immovable property by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempt from tax, other than where the beneficial owner of the dividends is a pension scheme in the other country.

The Treaty also provides for no withholding tax on interest and on royalties.

Capital gains derived by a resident of Cyprus or the UK are not taxable in the country of investment (except for gains relating to immovable property and gains from the alienation of movable property of a permanent establishment).

Any capital gains arising from the sale of shares or comparable interests in real estate rich companies (i.e., shares deriving more than 50% of their value directly or indirectly from immovable property), other than shares in which there is substantial and regular trading on a Stock Exchange, will only be taxed in the source state.

The Treaty also includes an article on taxation of offshore activities which overrides any other provisions of the Treaty.

The Treaty is effective as from 1 January 2019 with respect to withholding and other taxes for Cyprus. With respect to the UK, the Treaty is effective as from:

  • 1 January 2019 for withholding taxes
  • 1 April 2019 for corporation taxes
  • 6 April 2019 for income and capital gains taxes

Protocols to Existing Treaties

Treaty with Mauritius

The Protocol revises the provisions related to exchange of information in order to bring them in line with Article 26 of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention.

The Protocol between Cyprus and Mauritius is effective as from 1 January 2019 for Cyprus and as from 1 July 2018 for Mauritius.

Treaty with San Marino

The Protocol revises the provisions related to exchange of information in order to bring them in line with Article 26 of the OECD Model Tax Convention.

The Protocol between Cyprus and San Marino is effective as from 1 January 2019 for both countries.

Other developments

During 2018, Cyprus signed new treaties with Andorra and Saudi Arabia. These treaties will come into force once the ratification process is completed.

EYG no. 012862-18Gbl

Download this Tax Alert as a PDF file.

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