|
Double Tax
Treaties
Cyprus
has entered into 33 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 have been 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, the agreement was signed
in Beirut by Cyprus' Finance Minister, Takis Klerides, and
his Lebanese counterpart, Fuad Siniora, and is 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 is 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
new agreement also clarifies the taxation of ships' crews
who will be taxed according to the residential status of their
employer, rather than according to an individual crew member's
residential status, and includes provisions which seek to
prevent fiscal evasion.
The
new agreement will be particularly welcome to the large contingent
of German ship-owning firms based on the island of Cyprus,
which is the third-largest ship management centre worldwide
after Singapore and Hong Kong.
In
November, 2005, the Foreign Minister of San Marino, Fabio
Berardi, who was in Cyprus on an official visit, met President
Tassos Papadopoulos and signed a protocol which may lead to
a Double Tax Avoidance Treaty between the two countries. Many
Italian companies would be likely to use a San Marino/Cyprus
axis in their international structures if there was a DTAA.
In
December, 2005, the head of the Russian tax service, Anatoly
Serdyukov, announced that double taxation avoidance agreements
will 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.
It's
not clear whether Russia would be able to take any unilateral
action to restrict users of the Cyprus tax treaty.
In
July, 2006, the governments of Cyprus and the Seychelles have
agreed to a new bilateral pact which aims to prevent the double
taxation of income, and boost investment flows between the
two countries.
The
agreement was signed in the Seychelles last week 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.
The
bulk of any new investment is expected to originate initially
from Cyprus, but Dugasse argued that there is no reason why
investors in the Seychelles could not also capitalise on the
agreement.
Cyprus
has also shown "keen interest" in starting negotiations towards
a a Bilateral Investment Promotion and Protection Agreement.
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 will need to revise many of
its treaties as a result, as well as entering new treaties
with additional countries.
The
following countries have double-tax treaties with Cyprus (an
* indicates that the treaty is awaiting ratification):
- Armenia*
- Austria
- Belgium
- Bulgaria
- Canada
- China
- CIS
(ex-USSR)
- Czech
Republic
- Denmark
- Egypt
- Federal
Rep. of Germany
- Finland*
- France
- Greece
- Hungary
- India
- Ireland
- Italy
|
- Japan*
- Kuwait
- Malta
- Mauritius
- Norway
- Poland
- Romania
- Russia
- Singapore*
- Slovakia
- South
Africa*
- Sweden
- Syria
- Thailand
- Ukraine*
- United
Kingdom
- United
States
- Yugoslavia
(Serbia and Montenegro)
|
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.
BACK
TO TOP
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. |
BACK
TO TOP
|
