Cyprus
Double Tax Treaties
Cyprus has
entered into almost 50 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. See
below for further important developments regarding the Cyprus/Russia
tax treaty.
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.
In
April 2009, Russia and Cyprus signed a new double taxation
avoidance agreement which finally secured Cyprus's removal
from the notorious Russian 'blacklist' of jurisdictions which
have not demonstrated a sufficient level of cooperation with
the Russian tax authorities.
The
protocol, the result of several years of hard bargaining,
was signed in Nicosia by Finance Minister Charilaos Stavrakis
and Ilya Trunin, a senior tax official in the Russian Finance
Ministry.
The
pre-existing tax treaty between Russia and Cyprus was one
of the major reasons for the huge flow of Russian investment
through the Mediterranean island in recent years. In 2006,
21.6%, or USD28bn, of the USD130bn total accumulated investments
in Russia came via Cyprus, while Russian deposits in Cypriot
banks are said to exceed USD26.35bn.
In
2008, Russia added Cyprus to a 'blacklist' of 54 countries
(since reduced in number), on the grounds that it was an ‘uncooperative
territory’. This blacklist was part of an amendment
to the Russian tax code which introduced a tax exemption on
the repatriation of dividends from foreign subsidiaries of
Russian companies under certain circumstances. Russian subsidiaries
based in territories and countries on the so-called blacklist
were not included in the exemption.
Many
European countries such as Ireland, Luxembourg and Switzerland
successfully lobbied the Russian government to be removed
from the blacklist, but Cyprus remained on the list due to
its apparent failure in the past to fulfil requests for information
from the Russian tax authorities in certain cases. According
to Stavrakis, Cyprus's name was to be erased from the blacklist
thanks in large part to a commitment by Nicosia in 2008 to
improve exchange of information provisions.
Stavrakis
said that the new agreement maintains "the very low and
competitive factors Russians are enjoying today concerning
investments through Cyprus" although he conceded that
Russia succeeded in winning "a significant number of
concessions" that they had been asking for.
A
major concession won by Russia will see capital gains made
by Russian subsidiaries of Cypriot holding companies with
more than 50% of their assets in Russian property taxed at
the prevailing rates in Russia.
Trunin
remarked that the amendments ensure that the double tax agreement
will not be used "in an inappropriate way" by residents
and investors in Cyprus and Russia, but would nevertheless
result in Cyprus's removal from Russia's "list of offshore
jurisdictions" which he stopped short of calling a "blacklist."
The
German Ministry of Finance announced on September 1, 2009,
that it had initialled the text of a revised double taxation
agreement with Cyprus to allow for the exchange of information
on tax matters between the two countries’ tax authorities,
in accordance with Article 26 of the OECD model convention.
Upon
entry into force, the agreement will allow the respective
countries' tax authorities to request information pertaining
to tax crimes, and in civil tax matters. The Ministry’s
statement recognized Cyprus’ commitment to implementing
the internationally-agreed standard.
The
agreement will enter into force when both countries have signed
and concluded their individual ratification procedures.
Most of
Cyprus's 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:
- Azerbaijan
- Armenia
- Austria
- Belarus
- Belgium
- Bulgaria
- Canada
- China
- CIS (ex-USSR)
- Czech Republic
- Denmark
- Egypt
- Federal
Rep. of Germany
- Finland
- France
- Greece
- Hungary
- India
- Ireland
- Italy
- Japan
- Kuwait
- Kyrgyzstan
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- Lebanon
- Moldova
- Malta
- Mauritius
- Norway
- Poland
- Qatar
- Romania
- Russia
- San
Marino
- Serbia
and Montenegro
- Seychelles
- Singapore
- Slovakia
- South Africa
- Sweden
- Syria
- Tajikistan
- Thailand
- Ukraine
- United Kingdom
- United States
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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.
Comprehensive
information on the tax treaties and rates can be found here.
BACK
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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
|
- Malta
- Romania
- Slovakia
- Sweden
- Syria
- United
Kingdom
- Yugoslavia
|
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)
BACK TO TOP
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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Cyprus Other International Agreements
In
March 2009, Cypriot Minister of Commerce, Industry and Tourism,
Antonis Paschalides, signed an agreement to protect and promote
mutual investment with Iran.
During
the Minister’s meetings in Tehran, issues of common
interest were discussed and ways of further developing economic,
trade, tourism and investment relations between Cyprus and
Iran were examined. In the framework of the meeting with the
Iranian Minister of Finance, an agreement was signed for the
Mutual Promotion and Protection of Investments between Cyprus
and Iran.
On
March 27, 2009, Cyprus ratified the Council of Europe Convention
on Money Laundering, Search, Seizure and Confiscation of the
Proceeds from Crime and on the Financing of Terrorism (CETS
No. 198).
The
convention opened for signature to the member states of the
Council of Europe, the non-member states which have participated
in its elaboration, and the European Community, in Warsaw,
on May 16, 2005. It entered into force on May 1, 2008.
The
latest convention replaces the Council of Europe’s 1990
convention, providing legislation to take into account the
fact that not only could terrorism be financed through money
laundering from criminal activity, but also through legitimate
activities.
The
new convention is the first international treaty covering
both the prevention and the control of money laundering and
the financing of terrorism. The text addresses the fact that
quick access to financial information or information on assets
held by criminal organisations, including terrorist groups,
is the key to combating them. The convention includes a mechanism
to ensure the proper implementation of its provisions by participants.
Following
the completion of the work of the Joint Cyprus - Libya Committee,
an important Protocol of Cooperation was signed between the
two countries in June 2009, which aims inter alia to enhance
and further develop their bilateral relations in the fields
of economy, commerce and science.
The
Protocol was signed in Nicosia by the Minister of Finance
Mr Charilaos Stavrakis who was head of the Cyprus delegation
at the talks and by the Minister of Justice of Libya Abdel
Jalil, who headed the Libyan delegation.
"Cyprus’s
aim is to attract foreign investment companies in Libya, which
could make their investments through Cyprus", the Cypriot
Minister said in a statement after the signing, underlining
in particular Cyprus’s tax regime as the lowest in Europe.
Stavrakis
noted that following the meeting he had agreed with Libya
to visit within the coming months to conclude an agreement
for the avoidance of double taxation to further boost trade
and investments between Cyprus and Libya.
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LAWANDTAX-NEWS.COM
13/07 
