CYPRUS – ANDORRA DOUBLE TAX TREATY

Cyprus ratified the double tax treaty (DTT) which has signed with Andorra on the 18th of May 2018. The new DTT will enter into force one both contracting parties finalise certain formalistic procedures. As soon as the DTT will enter into force it will be implemented by both countries as of the 1st day of January of the next calendar year.

The most important provisions of the DTT are the following:

Dividends, Interest, Royalties Withholding Tax

There is 0% withholding tax rate on dividends, interest and royalties.

Capital Gain Tax

Cyprus maintains the exclusive right to impose tax on the profits made by Cyprus tax residents from the disposal of shares, except in cases where over the 50% of the shares value derives, directly or indirectly from immovable property situated in Andorra.

This exception is not applicable in cases where the disposed shares are listed in a recognized stock exchange of Andorra, Cyprus or European Union (EU)/European Economic Area (EEA) Member State, provided that the vendor held at the time of the disposal wither directly or indirectly not more than the 25% of the total capital in the company, at any time during a 12-month period preceding the disposal.

Principal Purpose Test:

Action 6 of the Base Erosion and Profit Shifting (BEPS) has been fully applied in the DTT, which is the minimum requirement under the BEPS plan. The Purpose Principal Test provides that a contracting party shall not be eligible of a DTT benefit, if the principal purpose of the specific transaction or arrangement was to obtain the benefits of the DTT. This clause is implemented within the DTT to challenge treaty shopping and ensure that the transactions and activities of the settlement are supported by appropriate commercial rationale and substance.