Double Tax Treaty signed between Cyprus and Spain

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.

Flat annual levy for all Cyprus Companies

The new amendment of the Companies Law (no. 117(1)/2011) passed on the 7^th of December 2012 by the House of Representatives, provides the following:

a. All existing registered companies are required, with regards to the current year, to proceed with the payment of a Levy of €350 (hereinafter referred as ‘the Levy’), not later than the 30th of June of each year.

b. A company shall not be required to pay such Levy, in the year of incorporation.

In case that there is delay in the payment of the Levy the following penalties will apply:

• Up to 2 months – 10% (3^rd of July - 31^st of August):  €385

• 2 to 5 months – 40% (1^st of September – 31^st November): €490

After 5 months- the Registrar will de-register the Company. Re-registration of the Company can be made within two years with a payment of €500 annual fee. In case that the re-registration will take place after the period of two years from the date of de-registration the annual fee increases to €750.

c. Companies which were exempted from the payment of the annual fee for 2012, in accordance with the previous legislation, will now have to proceed with the payment prior to the end of March 2013.

Delay in the payment of the levy will incur penalties ranging from 10% to 30% even leading to the company’s removal from the Registry. Removal from the Registry will automatically exclude the company from filing any documents or requesting certificates from the Registrar’s Office while possibly facing problems with the legality of the transactions to which it is engaged.

The deadline for the payment of the Levy as from 2013 onward will be 30 June.

Increase in the Cyprus VAT rate

For the period from 14 January 2013 to 12 January 2014 the standard VAT rate will increase from 17% to 18% for the supply of goods and services. 

Furthermore, as from 13 January 2014 the standard VAT rate will further increase from 18% to 19%. Therefore, all the supplies of goods and services that are currently taxable with the standard VAT rate of 17%, will become taxable at the rate of 18% from 14 January 2013.

The supplies of goods and services that fall under the zero VAT rate or are exempt from VAT will continue to have the same treatment for VAT purposes after 14 January 2013.

In addition, please note that the change in the standard VAT rate will not affect the reduced rates of 5% and 8% for the period 14 January 2013 - 12 January 2014. As from 13 January 2014, the reduced rate of 8% will increase to 9%. 

With the forthcoming increase of the standard VAT rate from 17% to 18%, please note that the transitional provisions of Article 55 of the VAT Law apply, based on which a taxable person selling goods or providing services has the choice of applying the old VAT rate (17%) or the new VAT rate (18%), but only for certain cases.

For more information, please contact us.

Double Tax Treaty signed between Cyprus and Portugal

On the 19th of November 2012  a double tax treaty and protocol have been signed between Cyprus and Portugal. The signing of the tax treaty together with the removal of Cyprus from the Portuguese “black list” (in November 2011) of jurisdictions with privileged tax regimes is expected to encourage investments between the two countries and will effectively reduce Portuguese withholding taxes.

The treaty will enter into force 30 days after the completion of the procedure through which the parties exchange notification of ratification and shall take effect on the 1st January following such date.

Below are some of the most important provisions of the treaty:

• It applies to personal income tax as well as corporate income tax for both States. Furthermore, in the case of Portugal, the treaty applies to surtaxes on corporate income, whilst in the case of Cyprus the treaty applies to Special Defence Contribution and Capital Gains Tax.

• The withholding tax rate on dividends, interest and royalties provided for by the treaty is 10%.

• The sale of shares in property rich companies may be taxed in the State in which the property is located.

• The withholding tax rates can be reduced to 0% under the provisions of domestic Portuguese tax legislation interposed as a result of the relevant EU directives. Under Cypriot  legislation there is no withholding tax on dividends and interest paid to non-residents and where withholding tax on royalties applies, if rights are used in Cyprus, such withholding tax can be reduced to 0% under the EU Interest and Royalties Directive.

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.

Double Tax Treaty between Cyprus and Estonia

The double taxation agreement between Cyprus and Estonia has been signed by the two countries' foreign ministers  on October 15 2012, according to the Cyprus ministry of foreign affairs. This is considered to be the first treaty finally signed between the two countries since Estonia rejected the Double Tax Treaty of 1982 (DTT) that was in place between Cyprus and the former Soviet Union. The new DTT is one more addition to the extensive network of DTTs that Cyprus has with more than 45 countries. The new DTT will allow Estonians to use the tax-beneficial Cypriot legal entities for the purpose of investing and paying dividends back into Estonia. Details of the new agreement are not yet available, and it is not yet officially confirmed when it will enter into force.