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Cyprus and Ukraine sign a new double tax treaty to replace the Cyprus – USSR double tax treaty
12.11.2012
业务领域: 税法业务

On 8 November 2012 the heads of state of Cyprus and Ukraine signed the new Convention for avoidance of double taxation and prevention of fiscal evasion, as well as a protocol to the Convention (together the “Treaty”). The Treaty is expected to come into force on 1 January 2014, provided it is ratified by the appropriate bodies in Cyprus and Ukraine. Once the Treaty comes into effect the old Cyprus – USSR treaty of 1982, to the extent that it applied to Ukraine, will be terminated.

The signing of the Treaty and the very favorable provisions preserve the prime position of Cyprus for investments in Ukraine via Cyprus companies.

A summary of the Treaty and the most important changes from the old Cyprus – USSR treaty include the following:

Place of effective management

Article 4 of the Treaty follows the OECD Model and provides for the “place of effective management” test in order to determine the tax residency status of a company or a person.

Income from immovable property

Article 6 of the Treaty provides that income derived by a resident of a Contracting State (“CS”) from immovable property (including income from agriculture or forestry) situated in the other CS may be taxed in that other CS.

Profit from the sale of shares in a company which is resident in a CS and owns land in the other CS, are taxed in the CS where the seller is a tax resident. 

Dividends

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

Pursuant to the Cyprus – USSR treaty there was zero withholding tax on dividend payments made by a resident of one CS to a resident of the other CS. Under the new Treaty the withholding tax on payment of dividends will be capped at 5% if the beneficial owner holds at least 20% of the capital of the dividend paying company or has invested in shares equivalent of at least Euro 100,000. In case these conditions are not met, the withholding tax is capped to 15%.

Interest

Interest arising in a CS and paid to a resident of the other CS may be taxed in that other CS if such resident is the beneficial owner of this interest.

Pursuant to the Cyprus – USSR treaty there was zero withholding tax on interest payments made by a resident of one CS to a resident of the other CS. Under the new Treaty the withholding tax on payment of interest will be capped at 2% provided the beneficial owner of the interest income is resident of the other CS.

Royalties

Royalties arising in a CS and paid to a resident of the other CS may be taxed in that other CS.

Pursuant to the Cyprus – USSR treaty there was zero withholding tax on royalties payments made by a resident of one CS to a resident of the other CS. Under the new Treaty the withholding tax on payment of royalties is 5% in case of royalties of copyright of scientific work, any patent, trade mark, secret formula, process or information concerning industrial, commercial or scientific experience and 10% for any other royalties.

Directors’ fees

Article 15 of the Treaty provides that Directors' fees and other similar payments derived by a resident of a CS in his capacity as a member of the board of directors of a company which is a resident of the other CS may be taxed in that other CS.

Exchange of information

Article 24 of the Treaty introduces a new wording of “exchange of information” which is in accordance with the OECD Model.

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