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Taxation Guide 2011

Cyprus Company Taxation News and Updates!

Notes:
(1) There is no withholding tax on payment of dividends and interest to non-residents.
(2)  Royalties granted for use outside of Cyprus are free of withholding tax in Cyprus.
(3) 10% in the case of royalties granted for use within the Republic.  5% on film and TV rights.
(4) In the absence of a permanent establishment in the other treaty country, business profits are only taxable in the country of residence of an enterprise. The only exception is the treaty with Romania that provides for a withholding tax of 5% on commissions payable from Romania to a Cyprus resident company or individual.
(5) Shipping profits, in general, are only taxable in the place of the effective management of the enterprise, irrespective of the existence of a permanent establishment, except in the case of:

• Greece and Poland, where shipping profits are taxable only in the place of registration of the ship
• Denmark, France and Germany in certain special circumstances        
• United States, where certain Cyprus ship owning companies may not be entitled to benefit from the treaty.

(6) The new countries of Czech Republic and Slovakia have agreed to be bound by the treaty, which was entered into with Czechoslovakia.
(7) The treaty with the former U.S.S.R. has been recognised by Georgia, Kyrgyz tan, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan but there are some problems in the practical application of the treaty provisions for some of these countries.
(8) The treaty with the former Yugoslavia has been recognised by Slovenia and Serbia/Montenegro.
(9) Treaties with Armenia, Algeria, Australia, Bangladesh, Brazil, Czech Republic, Denmark, Estonia, Finland, Georgia, Gabon, Indonesia, Iran, Ireland, Israel, Japan, Jordan, Kazakhstan, Latvia, Libya, Lithuania, Malaysia, Mexico, Moldova, Morocco, Netherlands, Pakistan, Portugal, Qatar, Sri Lanka, Spain, Switzerland, Turkmenistan, Ukraine, United Arab Emirates, Vietnam, Yemen, Yugoslavia and Zambia are either under negotiation or await ratification.
Anti – avoidance provisions
The Cyprus treaties contain the following special anti-avoidance provisions:
(10) Belgium - The provisions on withholding taxes on dividends, interest and royalties do not apply to persons entitled to special income tax benefits under the Cyprus Income Tax Law. Following the new Cyprus tax legislation in 2002, all preferential treatments have been abolished and the above restriction does not apply.
(11) Canada - International business companies, branches and partnerships cannot enjoy the benefits of the treaty. This exclusion does not apply to Cyprus companies owning ships under the Cyprus flag and enjoying full tax exemption in Cyprus. Following the new Cyprus tax legislation in 2002, all preferential treatments have been abolished and the above restriction does not apply.
(12) France - The articles of the treaty in respect to dividends, interest and royalties do not apply to Cyprus international business companies or branches or partnerships, unless the shareholders of such companies are residents of Cyprus. Following the new Cyprus tax legislation in 2002, all preferential treatments have been abolished and the above restriction does not apply.
(13) Germany - A protocol to the treaty imposes restrictions on the provisions of the article on the elimination of the double taxation. As a result, dividends received in Germany from a Cyprus international business company are taxable in Germany and a tax credit is given for the tax paid in Cyprus.
(14) United Kingdom - International Business Entities are excluded from obtaining relief under the treaty in respect of dividends, interest and royalties received from the UK. Following the new Cyprus tax legislation in 2002, all preferential treatments have been abolished and the above restriction does not apply.
(15) United States - Relief under the treaty is not available where the recipient of income is subject to tax in Cyprus at substantially reduced rates as compared to the rates in the country of his residence. This provision prevents ship owning companies from availing themselves of any benefits under the Treaty.

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