In 2018 Cyprus tax authorities and the Ministry of Economics have announced that the double tax treaties signed with Barbados and Ethiopia signed in 2017 and 2015 respectively are in force since all the necessary notifications have been ratified.

The double tax treaty with Barbados is in force effective 11 September 2017 and with Ethiopia effective 18 October 2017.

In addition to the above tax treaties, Cyprus has signed a new double tax treaty with the United Kingdom on 22 March 2018 and will enter into force when ratified by each State. This treaty will replace the existing treaty which was signed on 20 June 1974.

The basic provisions of the new treaty are summarized below:

Immovable Property Income

Income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other State.

Dividends

Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

However, dividends paid by a company which is a resident of a Contracting State may also be taxed in that State and according to the laws of that State provided the dividends are paid out of income 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 exempted from tax. In this instance the tax charged by the Contracting State of which the company paying the dividends is a resident shall not exceed 15% of the gross amount of the dividends except when the beneficial owner of the dividends is a pension scheme established in the other Contracting State.

Interest

Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State except in the case where the interest is derived from a permanent establishment in the other State.

In addition, the exception will not apply in the case where by reason of a special relationship between the payer and the beneficial owner the amount of the interest paid exceeds the amount which would have been agreed provided the Arm’s length principles were applied. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State.

Royalties

Royalties arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State except in the case where the royalties are derived from a permanent establishment in the other State.

In addition, the exception will not apply in the case where by reason of a special relationship between the payer and the beneficial owner the amount of the royalties paid exceeds the amount which would have been agreed provided the Arm’s length principles were applied. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State.

Capital Gains

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.

Gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State unless such shares are traded on a stock exchange.

Entitlement of benefits

Under this provision the benefits of the treaty shall not be applied where obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention.

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