Tax Exemptions in the Updated Cyprus-Ukraine Tax Treaty

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Last month, the parliament of Ukraine passed a draft law endorsing the amending Cyprus Double Tax Treaty Protocol. The Cyprus-Ukraine Tax Treaty has been in effect for 5 years since December 11th, 2015. Consequently, the amending protocol is now being implemented and will come into force next year by 1st January 2020.
The following protocol provisions have been updated:

1. 5% withholding tax on gross dividends if the beneficial owner is a company (most entities are accepted; partnerships being excluded) which directly holds a minimum of 20% of the capital of the company paying the dividends and has invested the equivalent of at least EUR €100,000 in the acquisition of the shares or other rights of the company.

2. 10% withholding tax on gross dividends will apply in all other cases (replacing the previous rate of 15%).

Interest Tax
The previous withholding tax rate stands at 2%. A new gross interest of 5% will apply.

Capital Gains Tax (CGT)
Capital Gains originating in a resident of a State from the separation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State, may be taxed in that other State with certain exceptions.

Any other disposal of shares is taxed in the State of the alienator provided that it is subject to tax in that State.

Most Favoured Nation Clause
The most favoured nation is a level of treatment conferred by one state to another in international trade. The protocol holds that with Ukraine’s consent, where a valid a Treaty with any other jurisdiction stands after July 2nd 2015, a tax exemption arising in Ukraine will be granted for the following assets:

Any interest or royalty payments.
An exemption to apply lower rates of Ukrainian taxation to such payments than those provided by the respective Articles of the Treaty, or to include more favourable provisions in Article 13 Capital Gains. Then the two jurisdictions have the right to re-negotiate the terms (as long as both parties agree) in order to apply such exemptions or lower rates as per the Treaty.

Do you have a Cypriot or Ukraninan company? For more information on the tax exemptions contact us, we’d be happy to help.