Tax News:  09/2021                                                                                                                             10 June 21

Cyprus signed a tax treaty for the avoidance of double taxation (the “treaty”) with the Netherlands on 1 June 2021. The signed treaty was published in the Official Gazette on 4 June 2021, the date of ratification by Cyprus.

The treaty will enter into force on the last day of the month following the month in which all the legal procedures by both contracting states are completed. Once it enters into force, the treaty will have effect on or after the 1^st of January following the date the treaty enters into force.

The treaty’s main provisions are summarised below:

Dividends

No withholding tax (WHT) will apply if the beneficial owner is:

1. a company that holds directly at least 5% of the capital of the company paying the dividends, throughout a 365-day period including the day of the dividend payment;
2. a recognised pension fund of the other contracting state which is generally exempt under the corporate Income Tax laws of that state.

For all other cases, the treaty provides 15% WHT.

Interest

No withholding tax (WHT) will apply provided the recipient of the interest is the beneficial owner of the income.

Royalties

No withholding tax (WHT) will apply provided the recipient of the interest is the beneficial owner of the income.

Capital gains

• Gains derived by a resident of a contracting state from the alienation of immovable property situated in the other contracting state  may be taxed in that other state.
• Gains derived by a resident of a contracting state from the alienation of shares in a company or comparable interests which derive more than 50% of their value directly or indirectly from immovable property situated in the other contracting state, may be taxed in that other state except in the case of gains derived from alienation of shares or comparable interests in:
• Listed companies on a recognised stock exchange;
• The course of a corporate reorganisation such as a qualifying merger, division, and similar transaction;
• Cases where the immovable property from which the shares derived their value is immovable property in which the business is carried on;
• Cases where the alienator owns directly or indirectly, either alone or with related persons 25% or less of the capital or other comparable interests prior to the first alienation of shares;
• Cases when the alienator is a recognised pension fund.

The treaty also includes a specific Article (Article 26) which limits the entitlement to benefits under the treaty by the Tax Authorities if the obtainment of such benefit was one of the principal purposes of the relevant arrangement/transaction, unless it is established that the granting of such benefit would be in accordance with the object and purpose of relevant provisions of the treaty. The Tax Authorities of a contracting state shall consult with the Tax Authorities of the other contracting state before denying a benefit under the said Article.