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Важна Информация

Cyprus and Ukraine sign new Double Tax Treaty


The new treaty upholds Cyprus’ position as one the preferred routes for investments and other transactions in and out of Ukraine.

The agreement was signed in the Republic’s capital, Nicosia, during an official visit by the President of Ukraine, Viktor Yanukovych to Cyprus in the first official visit of a Ukrainian president to the island.

A number of bilateral documents were also signed, in such areas as maritime merchant shipping, air transport, agriculture, investment cooperation, inter-university cooperation, physical education and entrepreneurship.

The new DTT shall not come into force until the 1st January following the year of its ratification by both countries. Assuming it is ratified within 2013, the new DTT shall be in effect as from 1 January 2014.
The new DTT is based largely on the OECD Model Tax Convention and has the following main new features:
- Article 4 of the DTT now follows the OECD Model in that it introduces the ‘place of effective management’ test for determining the tax residency of a company where it is considered to be resident of both Cyprus and Ukraine.

- The favourable capital gains provision currently applying for ‘property rich’ companies has NOT changed, meaning that the taxing right for sale of shares (even in ‘property rich’ companies) remains only with the country where the seller is resident.

- The withholding tax rates provided in the new DTT are now 5% in the case of dividends where the beneficial owner holds at least 20% of the capital of the dividend paying company or has invested in the acquisition of the shares or other rights of the company equivalent of at least EUR 100,000 (where these conditions are not met the withholding tax is limited to 15%), 2% withholding tax rate in the case of interest provided the beneficial owner of the interest is resident of the other country, 5% withholding tax rate in the case of royalties. It is noted that in accordance with its domestic legislation, Cyprus does NOT impose any Cyprus withholding tax on outgoing payments to non-Cyprus residents.

- Article 5 of the DTT now follows the OECD Model whereby a ‘permanent establishment’ shall be created in the other country only if it lasts more than 12 months. This has been also changed to cover the place of exploration and extraction of natural resources, building site/construction and installation projects. Furthermore, Article 3 of the DTT changes the term ‘Cyprus’ so that it now also covers other areas such as the exclusive economic zone which is important given the recent discovery and exploitation of hydrocarbons and other valuable natural resources in the exclusive economic zone of Cyprus.

- Introduction of a tax relief credit method and also provision for a tax sparing credit.

- The Exchange of Information article is being brought in line with Article 26 of the OECD Model.


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