Double Taxation Treaties
The development of international trade has increased the issue of double taxation and many countries have entered into agreements with other countries in order to limit taxation. A double taxation treaty enables the offsetting of tax paid in one country against the tax payable in another thus preventing double taxation although the rates and exemptions vary from one country to another. As of January 2010 Cyprus had entered into 45 double taxation agreements, these are listed in the table below. Although Cyprus has fewer DTT’s than some competing EU jurisdictions they are, in many cases, more beneficial such as those with Russia, Eastern Europe and the Middle East.
A significant number of double tax treaties concluded by Cyprus lowers and in some cases eliminates, foreign withholding taxes on dividends, interest, royalties or capital gains. Tax sparing credits (see below) are also prevalent in some jurisdictions.
A list of Double Taxation Agreements which have been concluded and their respective date of enforcement can be found below.
|Jurisdiction||Entry into force date|
* The treaty between Cyprus and the Socialist Federal Republic of Yugoslavia is still in force.
** The treaty between Cyprus and the Czechoslovak Socialist Republic is still in force. The treaty has ceased to apply between Cyprus and Czech Republic as from 01/01/2010 (date of application for the provision of the new agreement).
*** The treaty between Cyprus and the Union of Soviet Socialist Republics is still in force.
Tax Sparing Credits:
Tax sparing is a tax treaty provision whereby the contracting state agrees to grant relief from from resident taxation with respect to source taxes that have not actually been paid (taxes that have been ‘spared’). Tax sparing provisions can provide significant scope for international tax planning.
Tax sparing credit provisions can be found in the treaties concluded with the following countries;
Canada, China, Czech Republic, Slovakia, Denmark, Egypt, Germany, Greece, India, Ireland, Italy, Malta, Mauritius, Poland, Romania, Russia, Syria, Thailand, UK, Yugoslavia.
The taxes that are 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 purpose of economic development in Cyprus (Denmark, Germany, France).
If you require a copy of the double taxation agreements between Cyprus and any of the above countries please contact us.
CJEU: Defines Key Definitions for Tax & Beneficial Ownership Purposes
Last month, the Court of Justice of the European Union (CJEU) issued a series of important judgments dealing with tax avoidance and beneficial ownership in the context of the EU Parent-Subsidiary Directive (PSD) and the Interest and Royalties Directive (IRD).