Cyprus UK Double Tax Treaty

On 22 March 2018, Cyprus signed a new tax treaty and accompanying Protocol (the new DTT) with the United Kingdom. The agreement updates the existing convention signed by the two countries in June 1974 and came into effect in March 1975 (amended by the 1980 Protocol).

The agreement is based on the new OECD Model Convention for the avoidance of double taxation on income and on capital and incorporates all the minimum standards of the Base Erosion Profit Shifting (BEPS) project, as issued by the OECD /G20 in October 2015, those of BEPS Action 6 (Treaty Abuse) and BEPS Action 14 (Making Dispute Resolution Mechanisms More Effective).

Furthermore, it includes the exchange of financial and other information in accordance with the relevant Article of the Model Convention. It also provides for the exchange of bank and other information in line with the same model.

Dividends, Interest and Royalties

The new DTT provides for a 0% WHT rate on payments of dividends, interest and royalties with the exception of dividends paid by certain investment vehicles out of income derived, directly or indirectly, from tax exempt immovable property income; in such cases a 15% WHT rate applies.

Capital Gains

For capital gains, Cyprus retains the exclusive taxing right on the disposal of shares made by Cyprus tax residents, except in the following cases:

  • Where the shares derive more than 50% of their value (directly or indirectly) from immovable property situated in the UK. This does not apply to shares in which there is substantial and regular trading on a Stock Exchange;
  • Where the shares derive their value or the greater part of their value (directly or indirectly) from certain offshore rights/property relating to exploration or exploitation of the seabed or subsoil or their natural resources located in the UK.

Tax Residency

The determination of tax residency of companies shall be based on:

  • The place in which the senior management of the person is carried;
  • The place where the meetings of the board of directors are taking place;
  • The location where the person’s headquarters are situated;
  • The scale of the economic nexus of the person to each State;

Entry into force and effective dates

The treaty will enter into force once both Cyprus and the UK exchange notifications that their formal ratification procedures have been completed.

Certain formal legal procedures must now take place in each State, following which the new DTT will enter into force. Once the new DTT enters into force it will take effect:

  • in Cyprus as from 1 January of the next calendar year, and;
  • in the UK (i) for withholding taxes (WHTs) for amounts paid or credited on or after 1 January of the next calendar year, (ii) for income tax and capital gains tax from the next 6 April, and (iii) for corporation tax for any financial year beginning on or after the next 1 April.

Once the new DTT comes into effect it will replace the existing DTT between Cyprus and the UK.

We expect that the revised tax treaty between the two countries will contribute to the enhancement of the economic co-operation between Cyprus and the UK.

How we can assist you

At IBCCS, we will be happy to assist you from the legal and tax point of view in order to maximise future tax gains and eliminate the potential tax liability and in regard to the new tax treaty between UK and Cyprus.For enquiries contact us by email on [email protected] or call our office in Cyprus directly on +357 222 58 777.