Double Tax Treaties

INTRODUCTION

In addition to the key geographical position of the Island, the excellent infrastructure, the significant tax and other incentives provided and the factors already explained, the wide and increasing network of double tax treaties allows Cyprus to be considered as one of the most attractive International Business Centres in the World.

Cyprus has entered into several double taxation agreements with a number of countries for the avoidance of double taxation of income. All the East European countries namely Bulgaria, Czechia, Slovakia, Hungary, Poland, Romania, Russia and Yugoslavia have double taxation treaties with Cyprus.

Double tax treaties are also currently in force with, Austria, Canada, China, Denmark, Egypt, France, Germany, Greece, India, Ireland, Italy, Kuwait, Malta, Norway, Sweden, Syria, United Kingdom and United States. A number of other treaties are currently under negotiation or awaiting ratification or signature.

The majority of these treaties follow the OECD (Organisation for Economic Cooperation and Development) model.

The existence of this extensive and increasing network of double tax treaties offers considerable scope for tax planning for the Cyprus International Business entities. Under these agreements, a credit is usually given against the tax levied by the contracting country in which the taxpayer resides. The advantage of this is that tax is normally paid only at the higher of the two rates.

EASTERN EUROPEAN COUNTRIES

Cyprus has double tax treaties with all Eastern European Countries and this offers considerable advantages when using Cyprus in order to extract business profits from these countries. Taking into consideration the continuing increase of trading activities involving Eastern European countries and other countries in the World the use of Cyprus International Business Companies is a great opportunity for minimizing tax liabilities.

Examples where Cyprus tax treaties can be used to take advantage of trading with Eastern European countries include:

The establishment of a subsidiary company in Cyprus by a company in a country that has no treaty with Eastern Europe.

The use of a Cyprus International Business Company to distribute interest and royalties to countries which do not tax dividends from foreign subsidiaries.

A Cyprus International Business Branch whose management and control are in Cyprus, may be established by a company in a country which do not tax at all, or in full business profits of foreign branches.

BUSINESS PROFITS UNDER DOUBLE TAX TREATY

Under the Cyprus double tax treaty agreements, no business profits of Cyprus resident entity are taxed by a treaty country unless the entity maintains a permanent establishment in the other country and carries out business in that country through the permanent establishment.

DOUBLE TAX AGREEMENTS

Tax Treatment of Dividends, Interest and Royalties

	Paid to residents of the countries shown (See note 1 below)			Paid to residents of Cyprus
Country	Dividends	Interest	Royalties	Dividends	Interest	Royalties
Austria	10%	Nil	Nil	10%	Nil	Nil
Belarus	5% (18)	5%	5%	5% (18)	5%	5%
Belgium	10% (8)	10%(6,19)	Nil	10% (8)	10% (6,19)	Nil
Bulgaria	5% (23)	7% (6)	10%	5% (23)	7% (6,24)	10% (24)
Canada	15%	15% (4)	10% (5)	15%	15% (4)	10% (5)
China	10%	10%	10%	10%	10%	10%
Czech Republic	10%	10% (6)	5% (7)	10%	10% (6)	5% (7)
Denmark	10% (8)	10% (6)	Nil	10% (8)	10% (6)	Nil
Egypt	15%	15%	10%	15%	15%	10%
France	10% (9)	10% (10)	Nil (3)	10% (9)	10% (10)	Nil (3)
Germany	10%(8)	10% (6)	Nil (3)	10% (8)	10% (6)	Nil (3)
Greece	25%	10%	Nil (12)	25% (11)	10%	Nil (12)
Hungary	Nil	10% (6)	Nil	5% (8)	10% (6)	Nil
India	10% (9)	10% (10)	10% (16)	10% (9)	10% (10)	15% (15)
Ireland	Nil	Nil	Nil (12)	Nil	Nil	Nil (12)
Italy	Nil	10%	Nil	15%	10%	Nil
Kuwait	10%	10% (6)	5% (7)	10%	10% (6)	5% (7)
Malta	15%	10%	10%	Nil	10%	10%
Mauritius	Nil	Nil	Nil	Nil	Nil	Nil
Norway	Nil	Nil	Nil	Nil (13)	Nil	Nil
Poland	10%	10% (6)	5%	10%	10% (6)	5%
Romania	10%	10% (6)	5% (7)	10%	10% (6)	5% (7)
Russia	5% (17)	Nil	Nil	5%(17)	Nil	Nil
Singapore	Nil	10% (6,25)	10%	Nil	10% (6,25)	10%
Slovak Republic	10%	10% (6)	5% (7)	10%	10% (6)	5% (7)
South Africa	Nil	Nil	Nil	Nil	Nil	Nil
Sweden	5% (8)	10% (6)	Nil	5% (8)	10% (6)	Nil
Syria	Nil (8)	10%	10%	Nil (8)	10% (4)	10%
Thailand	10%	15% (21)	5% (22)	10%	15% (21)	5% (22)
UK	Nil	10%	Nil (3)	15% (14)	10%	Nil (3)
USA	Nil	10% (10)	Nil	5% (9)	10% (10)	Nil
USSR	Nil	Nil	Nil	Nil	Nil	Nil
Yugoslavia	10%	10%	10%	10%	10%	10%
All other countries	NIL(1)	NIL(1)	NIL(1,2)	(27)	(27)	(27)

Explanatory Notes

Under Cyprus legislation there is no withholding tax on dividends, interests and royalties paid to non-residents of Cyprus.
In case where royalties are earned on rights used within Cyprus there is withholding tax of 10%.
5% on film and TV royalties.
Nil if paid to a Government or for export guarantee.
Nil on literary, dramatic, musical or artistic work.
Nil if paid to the Government of the other state.
This rate applies for patents, trademarks, designs or models, plans, secret formulas or processes, or any industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.
15% if received by a company controlling less than 25% of the voting power.
15% if received by a person controlling less than 10% of the voting power.
Nil if paid to a Government, bank or financial institution.
The treaty provides for withholding taxes on dividends but Greece does not impose any withholding tax in accordance with its own legislation.
5% on film royalties.
5% if received by a person controlling less than 50% of the voting power.
This rate applies to individual shareholders regardless of their percentage of shareholding. Companies controlling less than 10% of the voting shares are also entitled to this rate.
10% for payments of a technical, managerial or consulting nature.
Treaty rate 15%, therefore restricted to Cyprus legislation rate.
10% if dividend paid by a company in which the beneficial owner has invested less than US$100.000.
In investment is less than 200.000 euro, dividends are subject to 15% withholding tax which is reduced to 10% if the recipient company controls 25% or more of the paying company.
No withholding tax for interest on deposits with banking institutions.
Armenia, Azerbaijan, Kurghystan, Moldova, Tatzikistan, Uzbekistan and Ukraine apply the USSR/Cyprus treaty.
10% on interest received by a financial institution or when it relates to sale on credit of any industrial, commercial or scientific equipment or of merchandise.
This rate applies for any copyright of literary, dramatic, musical, artistic or scientific work. A 10% rate applies for industrial, commercial or scientific equipment. A 15% rate applies for patents, trade marks, designs or models, plans, secret formulas or processes.
This rate applies to companies holding directly at least 25% of the share capital of the company paying the dividend. In all other cases the withholding tax is 10%.
This rate does not apply if the payment is made to a Cyprus international business entity by a resident of Bulgaria owning directly at least 25% of the share capital of the Cyprus entity.
7% if paid to bank or financial institution.
Slovenia and Serbia/Montenegro apply the Yugoslavia/Cyprus treaty.
At the rate applicable in accordance with domestic law of the paying country.