Cyprus approved the first-time Double Tax Treaty (DTT) between Cyprus and the Netherlands on June 4, 2021, after it had been signed on June 1, 2021. The Official Gazette has published of the same on June 4, 2021.
After the appropriate legal procedures are completed, the treaty will enter into force. The treaty will take effect in both contracting states on or after January 1, 2022.
The treaty is based on the OECD Model Tax Convention, and the following are some of its key provisions:
Dividends:
There is no withholding tax (WHT) if the beneficial owner (BO) is one of the following:
- a company that directly owns at least 5% of the capital of the company paying the dividends over a 365-day period that includes the day of the payment;
- a recognized pension fund that is normally exempt under Cyprus Corporate Income Tax law.
In all other instances, the treaty allows for a maximum of 15% WHT.
Interests:
The 0% WHT rate applies. Provided that the recipient of the interest is the BO of the income.
Royalties:
The 0% WHT rate applies. Provided that the recipient of the royalty is the BO of the income.
Capital gains:
Cyprus retains the exclusive taxing rights on disposals of shares made by Cyprus tax residents, except where:
- disposal of non-listed shares or comparable interests which derive more than 50% of their value directly or indirectly from immovable property situated in the Netherlands,
and
- disposal of shares deriving more than 50% of their value directly or indirectly from:
– rights to assets produced by exploration or exploitation of the natural resources located in the Netherlands, including the exploration or exploitation of the seabed or its subsoil and rights relating to the production of energy from water, sun and wind;
– technical equipment or other similar property situated in the Netherlands and directly used in offshore activities.
A specific article (Article 26) in the treaty limits the right to benefits under the treaty. More precisely, the Tax Authorities have the authority to refuse the application of treaty advantages if obtaining such advantages was one of the primary goals of the relevant arrangement/transaction, unless the granting of such benefit would be in accordance with the object and purpose of the treaty.
