The Treaty is based on the latest version of the OECD Model Convention for the avoidance of double taxation, incorporates the latest standards with regards to the exchange of information, mutual agreement procedure, principal purpose test, and takes into full consideration the recommendations of the BEPS action plan.
The main provisions of the Treaty are as follows:
- Dividends: 5% withholding tax if the beneficial owner of the dividend is a company (other than a partnership) holding directly at least 10% of the capital of the dividend-paying company, and 10% in all other cases
- Interest: 5% withholding tax, provided that the recipient is the beneficial owner of the interest income. 0% withholding tax if the beneficial owner of the interest is the Government, a political subdivision, a local authority or the National Bank of the other Contracting State.
- Royalties and fees for technical services: 7% withholding tax, provided that the recipient is the beneficial owner of the royalties/ fees.
- Gains derived by a resident of a Contracting State from the alienation of shares in property-rich companies, deriving more than 50% of their value directly from immovable property situated in the other Contracting State, and only those gains attributable to the immovable property, may be taxed in that other State. Gains derived by a resident of a Contracting State from the alienation of shares in companies deriving their value or greater part of their value directly or indirectly from exploration or exploitation rights, or from property situated in the other Contracting State and used in the exploration or exploitation of the seabed or subsoil or their natural resources situated in the other State, or from such rights and such property taken together, may be taxed in that other State.
NOTE: According to the domestic Cypriot legislation, no withholding tax is levied on payments of interest or dividends made to non-Cypriot resident physical or corporate persons, regardless of the existence or provisions of any double tax treaties. Furthermore, no withholding tax is levied on royalties arising from sources outside Cyprus.
The Treaty contains a principal purpose test, whereby treaty benefits may be denied in respect of an item of income or capital in cases where it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining treaty benefits was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit.
