The representatives of Cyprus and Spain signed a double tax treaty agreement on the 14 February 2013. The treaty will enter into force three months after its ratification and for taxes on income and capital at the beginning of the year following the date the treaty enters into force.
The signing of the tax treaty together with the removal of Cyprus from the Spanish “black list” of jurisdictions with privileged tax regimes is expected to encourage investments between the two countries and will effectively reduce Spanish withholding taxes.
The most significant provisions of the treaty are as follows:
Permanent Establishment
The permanent establishment definition included in the treaty is in line with the meaning provided in the OECD model tax convention. In particular, any building site or construction or installation project or any supervisory activities in connection with such site or project constitutes a permanent establishment only if it lasts more than 12 months.
Dividends
• 0% withholding tax applies if the beneficial owner is a company (other than a partnership) holding at least 10% of the capital of the company paying the dividend.
• 5% applies in all other cases.
Interest
• 0% withholding tax.
Royalties
• 0% withholding tax applies with respect to copyrights of literary, artistic or scientific work including films, any patent, trademark, secret formula or process or for information concerning industrial, commercial or scientific experience.
Capital Gains
• Gains from the disposal of immovable property are taxed in the country where the immovable property is situated.
• Gains from the disposal of shares or comparable interests not listed on the Stock Exchange of either country (deriving more than 50% of their value from immovable property), are taxed in the country in which the immovable property is situated. For the purposes of determining the value referred to above, the domestic law of the country where the immovable property is situated applies.
• Gains from the disposal of any other type of shares are taxed in the country of which the seller is resident.
