On 22 March 2018, Cyprus signed a double tax treaty with the UK which replaces the treaty signed between the two countries in 1974. It is expected that the treaty will soon be ratified, thus it will become effective as from 1 January 2019.
The new treaty is generally based on the OECD Model Tax Convention framework with some modifications.
The treaty applies to taxes on income as well as on gains from alienation of movable or immovable property. For the case of the UK, the treaty covers the income tax, corporation tax and capital gains tax, whereas for the case of Cyprus, it covers the corporate tax, personal tax, defence tax and capital gains tax.
Briefly the tax treaty provided for the following:
- It provides for zero withholding taxes on dividends in case the recipient is the beneficial owner of the income (exceptions apply).
- There is no withholding tax on interest and royalty payments, as long as the recipient of the interest or royalties is the beneficial owner of the income.
- Gains from the sale of property are taxed in the country where the property is located (except for shares of companies traded on a stock exchange).
- There is a limitation of benefits provision which provides that no benefit will be granted in respect of income or capital gain, if it is reasonable to conclude, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly to that benefit
- Determination of the tax residency of companies, an exercise under which the competent authorities shall consider several factors such as a) where the senior management of the company is carried on, b) where the meetings of the BOD or equivalent body are held, c) where the company’s headquarters are located, d) the extent and the nature of the economic nexus of the company to each state and whether determining that the company is a resident of one of the contracting states but not of the other state for the purposes of the Convention would carry the risk of an improper use of the Convention or inappropriate application of the domestic law of either state.
NZ Audit team will be glad to assist you on any questions or clarifications you may require. Please do not hesitate to contact us.