A Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Cyprus for the Elimination of Double Taxation was signed on 22nd March, replacing the treaty that had been signed between the two countries in 1974.
The new Convention is generally based on the OECD Model Tax Convention framework with some modifications and is expected to be soon be ratified and should come into effect as of 1st January 2019.
The provisions apply to taxes on income as well as on gains from alienation of movable or immovable property.
For the UK, the treaty covers:
- income tax;
- corporation tax; and
- capital gains tax;
For Cyprus, the treaty covers:
- corporate and personal income tax;
- defense tax; and
- capital gains tax.
The treaty provides for zero withholding taxes on dividends when the recipient is the beneficial owner of the income, except where dividends are paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax. Should this be the case, a withholding tax of 15% applies (except for the beneficial owner of the dividends being a pension scheme established in the other Contracting State).
There is no withholding tax on interest and royalty payments, if the recipient of the interest or royalties is the beneficial owner of the income.
Gains from the sale of property companies 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 under the treaty, which provides that no benefit will be granted in respect of income or a 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 in that benefit.