Cyprus – United Kingdom Double Tax Treaty

Recently Cyprus and the United Kingdom have entered into a Double Taxation Treaty (the DTT) based on the Organisation for Economic Co-operation and Development (OECD)  Model, which is to come into force as soon as both contracting parties will duly complete their internal procedures and exchange diplomatic notices.

Key Double TAX TREATY Provisions

Interest Withholding Tax: There is 0% withholding tax on interest payments in cases where the recipient of the interest is the beneficial owner. This will not apply in cases where the interest payment is made by the permanent establishment of the recipient situated in the other country. This exemption will also not apply in cases where the interest related transaction is between related parties and the agreed interest rate exceeds the one that would have applied in a transaction between non related parties. Any excess over and above the normal market rate will remain chargeable under the local legislation of the paying company’s residency country.

Royalties Withholding Tax: There is 0% withholding tax on royalty payments in cases where the recipient of the royalty is the beneficial owner. This will not apply in cases where the royalty payment is made by the permanent establishment of the recipient situated in the other country. This exemption will also not apply in cases where the royalty related transaction is between related parties and the agreed royalty price exceeds the one that would have applied in a royalty transaction between third parties. Any excess over and above the normal market rate will remain chargeable under the local legislation of the paying company’s residency country.

Dividends Withholding Tax: There is 0% withholding tax on dividend payments in cases where the recipient of the dividend is the beneficial owner. This will not apply in cases where over the 50% of the dividend paid derives either directly or indirectly from income related to immovable property, and such income was exempt from taxation. In such cases the withholding tax shall not exceed 15%, except in cases where the recipient dividend is a pension fund.

Directors’ Fees: Directors’ fees made to a resident of one country may be taxed in other country.

Capital Gains Tax: Cyprus maintains the 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 the United Kingdom. This exception is not applicable in cases where the disposed shares are listed in a recognized stock exchange of the United Kingdom, Cyprus or European Union (EU)/European Economic Area (EEA) Member State.

Income from immovable property: Any income deriving out of activities related to the use of immovable property situated in the other country may be taxed in that other country.