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Double Tax
Treaties
Cyprus
has entered into more than 40 double-tax treaties (unusually
for a low-tax jurisdiction). The general effect of these treaties
is that Cyprus-registered offshore entities that have tax
exemptions in Cyprus will have the same exemptions in the
treaty countries (see Tax-Sparing Provisions below).
In May 2001,
Cyprus announced that it had entered into double tax negotiations
with Iran, the Seychelles, Lebanon and Armenia. Talks were
also concluded with Indonesia.
In February, 2003, the Cypriot government said it had signed an agreement
for the avoidance of double taxation with Lebanon. According
to a government statement released at the time, the agreement
was signed in Beirut by Cyprus' Finance Minister, Takis Klerides,
and his Lebanese counterpart, Fuad Siniora, and was designed
to prevent both double taxation and fiscal evasion with regard
to taxes on income and capital.
In July, 2005, Cyprus announced that a revised Double Tax Avoidance
Agreement had been agreed with Germany. One of the more significant
outcomes of the agreement was a clarification of taxation
in the shipping sector. According to the new deal, profits
from international ships and aircraft in international traffic
"shall be taxable only in the Contracting State in which the
place of effective management of the enterprise is situated".
The agreement also clarified the taxation of ships' crews, who were
to be taxed according to the residential status of their employer,
rather than according to an individual crew member's residential
status, and included provisions which seek to prevent fiscal
evasion.
In November, 2005, the Foreign Minister of San Marino, Fabio Berardi,
who was in Cyprus on an official visit, met then President
Tassos Papadopoulos and signed a protocol designed to lead
to a Double Tax Avoidance Treaty between the two countries.
In December, 2005, the head of the Russian tax service, Anatoly Serdyukov,
announced that double taxation avoidance agreements would
be reviewed to prevent companies from avoiding tax by registering
offshore, and to "protect Russia's economic interests". According
to Mr Serdyukov, the federal budget was deprived of more than
$2 billion in unpaid profit tax by oil firms during 2004 because
the owners of these firms are resident for tax purposes in
low tax jurisdictions, such as Cyprus.
"We think it would make sense to check all agreements on double taxation
avoidance to protect Russian economic interests and see whether
they correspond to current legislation," Mr Serdyukov reportedly
told a meeting of the tax service.
The Russia/Cyprus tax treaty once again became the focus of attention
when the Russian authorities launched tax evasion proceedings
against a prominent foreign hedge fund mananger. It was alleged
that Kameya, a Russian company advised by Hermitage Capital,
the largest foreign hedge fund in Russia, had failed to pay
the correct amount of tax on a dividend paid to the controlling
shareholder of a Cypriot registered firm in May 2006.
In July, 2006, the governments of Cyprus and the Seychelles agreed
to a new bilateral pact which aimed to prevent the double
taxation of income, and boost investment flows between the
two countries.
The agreement was signed in the Seychelles by the Seychelles' Minister
for Economic Planning and Employment, Jacquelin Dugasse, and
the Cypriot Minister for Finance, Michalis Sarris.
“The signing is for us in Seychelles very important as it provides
the framework which will enable businesses in our two countries
to exploit the business ties and cooperation which exist,”
Minister Dugasse commented after the formalities had been
completed.
In
November 2008, the Qatari Prime Minister Sheikh Hamad bin
Jassim al Thani visited Nicosia to ratify several bilateral
agreements and Memoranda of Understanding between Qatar and
Cyprus, including an agreement on the avoidance of double
taxation.
Seven
agreements in all were ratified, including agreements for
the avoidance of double taxation, tax evasion, economic and
technical cooperation and the promotion and protection of
international investment.
Memoranda
of Understanding were also signed to intensify cooperation
between both countries' tourism, health and immovable property
sectors. An additional Memorandum of Understanding was also
signed between the central banks of Cyprus and Qatar for cooperation
in the monitoring of money lending organisations.
Most treaties
follow the OECD Model Convention, although the US Treaty follows
the most recent model of United States Agreements. Normally
speaking, therefore, the country of residence will give a
credit for taxes paid in the other treaty country. The Cyprus
offshore entity qualifies for treaty protection under all
the extant treaties except those with Canada, France, the
UK and the USA, and even in those cases the limitations apply
only to flows of income to Cyprus, and not to income flows
from Cyprus to the countries concerned.
Revisions
to Cyprus's corporate tax regime consequent upon its accession
to the EU, and the abolition of the 'offshore' sector as such,
have made Cyprus more rather than less attractive as a tax
treaty partner, and the island has found itself needing to
revise many of its treaties as a result, as well as entering
new treaties with additional countries.
The following
countries are among those which have double-tax treaties with
Cyprus, although not all have been ratified at the time of
writing:
- Armenia
- Austria
- Belgium
- Bulgaria
- Canada
- China
- CIS (ex-USSR)
- Czech Republic
- Denmark
- Egypt
- Federal
Rep. of Germany
- Finland
- France
- Greece
- Hungary
- India
- Ireland
- Italy
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- Japan
- Kuwait
- Malta
- Mauritius
- Norway
- Poland
- Romania
- Russia
- Singapore
- Slovakia
- South Africa
- Sweden
- Syria
- Thailand
- Ukraine
- United Kingdom
- United States
- Serbia and
Montenegro
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The
new Russian treaty signed in December 1998 replaces the USSR
(CIS) treaty as regards Russia but not as regards the other
member states of the CIS, who remain bound by the old treaty.
The differences are relatively minor.
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Tax Sparing Provisions
A
tax-sparing provision has the effect that if tax is 'spared'
ie exempted in Cyprus, then it is credited against an investor's
tax liability in his home country (the treaty counterpart)
as if it had actually been paid in Cyprus. There are tax-sparing
provisions in the treaties with the following countries:
- Canada
- Czech
Republic
- Denmark
- Federal
Republic of Germany
- Greece
- India
- Ireland
- Italy
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- Malta
- Romania
- Slovakia
- Sweden
- Syria
- United
Kingdom
- Yugoslavia
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The taxes all
or partly spared are as follows:
- Tax on interest
paid on loans for economic development in Cyprus (Canada,
Denmark, Germany, France, UK)
- Tax relieved
because of deductions in respect of investment in Cyprus
(Canada, UK)
- Tax on interest
or profits which is unpaid because of tax incentives, reliefs
or exemptions in Cyprus (Czech Republic, Greece, Ireland,
Romania, Slovakia, Yugoslavia)
- Tax not withheld
on dividends (15%) if the exemption is given for the purposes
of economic development in Cyprus (Denmark, Germany, France)
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Table
of Treaty Rates
(Excluding
treaties not yet in force; references to notes are in parentheses
after the rates, and apply to payments in both directions
unless otherwise specified; all rates are percentages; for
countries not listed the rules are too complex to be stated
here.)
| Country |
Dividends |
Royalties |
Interest |
| Rcvd.
in Cyprus |
Paid
from Cyprus |
Rcvd.
in Cyprus |
Paid
from Cyprus |
Rcvd.
in Cyprus |
Paid
from Cyprus |
| Austria |
10 |
10 |
nil |
nil |
nil |
nil |
| Belgium |
10 |
10 |
10 |
10 |
nil |
nil |
| Bulgaria |
nil |
nil |
nil |
nil |
nil |
nil |
| Canada |
15 |
15 |
10 |
10
(8) |
15 |
15
(11) |
| China |
10 |
10 |
10 |
10 |
10 |
10 |
| CIS |
nil |
nil |
nil |
nil |
nil |
nil |
| Czech
Rep. |
10 |
10 |
5 |
5
(9) |
10 |
10
(12) |
| Denmark |
10 |
10
(1) |
nil |
nil |
10 |
10
(13) |
| Egypt |
15 |
15 |
10 |
10 |
15 |
15 |
| France |
10 |
10
(2) |
nil |
nil
(10) |
10 |
10
(13) |
| Germany |
15 |
15
(3) |
nil |
nil
(10) |
10 |
10
(12) |
| Greece |
25 |
25 |
nil |
nil |
10 |
10 |
| Hungary |
5
(1) |
nil |
nil |
nil |
10 |
10
(12) |
| India |
15 |
15
(2) |
15 |
15 |
10 |
10
(12) |
| Ireland |
nil |
nil |
nil |
nil
(10) |
nil |
nil |
| Italy |
15 |
nil |
nil |
nil |
10 |
10 |
| Kuwait |
10 |
10 |
5 |
5
(9) |
10 |
10
(12) |
| Malta |
(4) |
15 |
10 |
10 |
10 |
10 |
| Mauritius |
nil |
nil |
nil |
nil |
nil |
nil |
| Norway |
nil |
nil
(5) |
nil |
nil |
nil |
nil |
| Poland |
10 |
10 |
5 |
5 |
10 |
10 |
| Romania |
10 |
10 |
5 |
5
(9) |
10 |
10
(12) |
| Russia |
5/10 |
5/10 |
nil |
nil |
nil |
nil |
| Slovakia |
10 |
10 |
5 |
5
(9) |
10 |
10
(12) |
| Sweden |
15 |
10
(1) |
nil |
nil |
10 |
10
(12) |
| Syria |
nil |
nil
(1) |
15 |
15
(16) |
10 |
10 |
| Thailand |
10 |
10 |
10 |
10 |
5/10/15 |
5/10/15 |
| UK |
15 |
nil
(6) |
nil |
nil
(10) |
10 |
10 |
| USA |
5 |
nil
(7) |
nil |
nil |
10 |
10
(14) |
| Yugoslavia |
10 |
10 |
10 |
10 |
10 |
10 |
| Notes:
(1) |
15% if received by a company holding directly less than
25% of the capital |
| (2) |
15%
if received by a company holding directly less than 10%
of the capital |
| (3) |
10%
if received by a company holding at least 25% of the capital
of the paying company. However, if German corporation
tax on distributed profits is lower than that on undistributed
profits and the difference between the two rates is 15%
or more, the withholding tax is increased from 10% to
27%. In all other cases it is 15%. |
| (4) |
Withholding
tax shall not exceed the tax chargeable on the profits
out of which the dividends are paid. |
| (5) |
5%
if received by a company controlling less than 50% of
the voting power. |
| (6) |
If
received by a company controlling less than 10% of the
voting power, thus entitled to refund of excess ACT deducted
in the UK (if it controls more than 10% of the voting
power, it is not entitled to the refund). |
| (7) |
15%
if received by a company controlling less than 10% of
the voting power. |
| (8) |
Nil
on literary, dramatic, musical or artistic work. |
| (9) |
Nil
for literary, artistic or scientific work, film, and TV
royalties. |
| (10) |
5%
on film and TV royalties. |
| (11) |
Nil
if paid to a Government or for export guarantee. |
| (12) |
Nil
if paid to the Government of the other state. |
| (13) |
Nil
if paid to the Government of the other state, in respect
of bank loans, in connection with the sale on credit of
any industrial, commercial or scientific equipment or
any merchandise. |
| (14) |
Nil
if paid to a Government, banks or financial institutions. |
| (15) |
Nil
if royalties are on literary, artistic or scientific work
including films, TV films and radio broadcasting. |
| (16) |
10%
on copyright of literary, artistic or scientific work
including cinematography films and films or tapes for
TV or radio broadcasting. |
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