New Double Tax Treaty signed between Cyprus and Ukraine

A new DTT  between Cyprus and Ukraine has been signed on the 8th of November 2012 by representatives of the two countries during an official visit of the President of Ukraine Mr Viktor Yanukovych in Cyprus. This treaty is to replace the old treaty with the USSR and it will enter into effect on 1 January following the year in which the parties exchange notifications of ratification.

The most significant provisions of the treaty are highlighted below:

• The withholding tax rate on dividends is 5% if the beneficial owner holds at least 20% of the capital of the dividend paying company or has invested in the acquisition of shares or other rights of the dividend paying company of at least €100,000. In all other cases the withholding tax rate is 15%.

• The withholding tax rate on interest is 2%.

• The withholding tax rate on royalties in respect of any copyright of scientific work, any patent, trade mark, secret formula, process or information concerning industrial, commercial or scientific experience is 5%, and 10% in all other cases.

• Taxing rights with respect to capital gains arising from a disposal of shares (irrespective of the underlying assets of the company in which the shares are being disposed of) or any other movable property is granted to the State in which the person making the disposal is tax resident.

Cyprus removed from Russia's Black List

From the 1st of January 2013 Cyprus will be removed from the Black List of the Russian Federation, according to an official communication made by the Russian Ministry of Finance.

This will have an immediate positive impact on both inbound investment to Russia from Cyprus and outbound investment from Russia to Cyprus and globally.

There are a couple of important advantages:
• With effect from 1 January 2013, dividends paid from Cyprus companies to Russian companies will be exempt from taxation in Russia (subject to the normal holding conditions), benefiting from the Russian participation exemption that does not apply to dividends from countries on the Black List.

• The transactions of Russian companies with Cyprus companies will not be subject to the onerous transfer pricing provisions introduced with effect from 1 January 2013 for countries on the Black List. The standard transfer pricing regulations will continue to apply.

• Other possible Russian provisions being introduced with restrictive implications in respect of payments to companies in jurisdictions on the Black List will not apply to transactions with Cyprus companies.