Ratification of Protocol to the Cyprus – Ukraine Double Tax Treaty

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The Protocol amending the Double Tax Treaty between Cyprus and Ukraine (which was signed back in December 2015) has been ratified by the Ukrainian parliament on the 30th October 2019, and its provisions shall have effect as of 1st January 2020.

The main amendments to the Double Tax Treaty that are effected by the Protocol are as follows:

•    Dividends: Withholding tax remains unchanged at 5%, provided that the beneficial owner is a company (other than a partnership) holding directly at least 20% of the capital of the dividend paying company and has invested at least €100,000 in the acquisition of shares or other rights of the company. In all other cases, the withholding tax shall be 10% of the gross dividends.

•    Interest: Withholding tax of 5% (previously was 2%) if the recipient of the interest income is the beneficial owner of such income.

NOTE: As per the local Cyprus legislation, Cyprus does not withhold tax on outbound dividends or interest payments, and only withholds tax at 10% on royalty payments if the royalties are used within Cyprus.

•    Capital gains: Gains from the disposal of shares in property-rich companies, deriving more than 50% of their value directly or indirectly from immovable property, may be taxed in the country in which the immovable property is situated. Certain exceptions apply, including the disposal of shares in listed companies and the disposal of shares in the course of a corporate reorganisation.

In addition, the Protocol provides for a “most favoured nation” clause which provides that if, after 2 July 2015, Ukraine enters into a Double Tax Treaty with another country which provides either for exemption or for more favourable provisions with regards to dividends, interest, royalties or capital gains than the Treaty with Cyprus, then the two countries shall have the right to renegotiate the terms of the Treaty with a view to incorporate such exemption or favourable provisions in the Treaty.

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