| George Y. Yiangou & Co´s team of tax experts advises Cypriot and international clients on complex issues in the area of corporate taxation. The focus is on the optimal tax structuring of acquisitions and restructurings, and on revenue taxation involving financial products, as well as all aspects of international tax law. Thus our firm is able to assist our clients from establishing their initial foreign representative office, to structuring their international cross-border activities in the most tax-efficient manner. About Double Tax Treaties Cyprus is probably the only country in the world that is considered a low tax jurisdiction and at the same time offers important international tax planning opportunities and advantages through its wide double tax treaty network.
Cyprus has signed double tax treaties with 33 countries, thus ensuring that the people of those countries pay, in total, an amount equal to the income tax of only one country. It is common for a credit to be allowed against tax levied by the country in which the taxpayer lives. Income from dividends, royalties and interest is taxable in the country of residence according to the law of that country, tax credit being allowed for foreign tax. You will find a table of all the double tax treaties and withholding tax rates on the next page. Benefits Provided By the Treaties The following are some examples where the Cyprus Double Tax Treaties may be used to the advantage of entrepreneurs. - Dividends from Bulgaria, Greece, Ireland, Malta and Russia are not subject to withholding taxes.
- Trading profits from treaty countries where Cyprus companies have no permanent establishment are exempt from tax (other than in Canada and USA).
- Interest received from Austria, Bulgaria, Ireland, Norway and Russia are exempt from withholding tax.
- Royalties from most treaty countries are exempt from tax. Because of 'this, through careful tax planning the double tax treaty network of Cyprus can be used in such a way as to reduce or minimize withholding taxes that otherwise would have been paid (sometimes at high rates).
- Shipping profits are only taxable in the place of residence or effective management of the owning company (however, these profits suffer no tax in Cyprus).
Capital Gains The treaties with the Czech Republic, Russia, Ukraine and other CIS countries provide that tax on capital gains excluding gains attributable to immovable property are paid in the country of residence of the investor. As offshore companies pay no capital gains tax in Cyprus, these gains are tax free in both countries. Regions of Exceptional Interest Eastern Europe
In view of the excellent political and economic relations with Eastern Europe, Cyprus has become today the most suitable country to channel investments to Eastern Europe. The table demonstrates the importance of the double tax treaties of Cyprus with these countries. - Kyrgyzstan
- Moldova
- Tajikistan
- Ukraine
- Uzbekistan
- Georgia
- Turkmenistan
| | Non Treaty Rate | Cyprus | | | Dividents | Interest | Royalties | Dividents | Interest | Royalties | | Bulgaria | 10/15 | 15 | 15 | 5 | 7 | 10 | | Czech Republic | 25 | 25 | 25/30 | 10 | 10 | 0/5 | | Hungary | 0 | 18 | 18 | 0 | 10 | 0 | | Poland | 20 | 20 | 20 | 10 | 10 | 5 | | Romania | 10 | 15 | 20 | 10 | 10 | 0/5 | | Russia | 15 | 15 | 20 | 5 | 0 | 0 | | Slovakia | 25 | 25 | 25/30 | 10 | 10 | 0/5 | | CIS | 0 | 0 | 0 | 0 | 0 | 0 | | Yugoslavia | 20 | 20 | 20 | 10 | 10 | 10 |
Management and Control for Treaty Purposes In order that an International Business Company may be entitled to take advantage of a Double Tax Treaty, it should be considered resident in Cyprus. For the purpose of most treaties a Cypriot company may be deemed resident in Cyprus if the majority of its directors reside in Cyprus, board meetings take place in Cyprus and generally the decision making is in Cyprus. The place of residence of the shareholders of the company is, in most cases immaterial. Out of the 34 treaties now in force, only Canada and USA exclude offshore companies. Denmark, France, Germany and UK have some anti-avoidance provisions but the treaties can still be used with most beneficial results.
Practical examples of advantageous uses of the Cyprus Tax Treaties are: - Extraction of dividends, interest or royalties by companies incorporated in countries that have no treaties or not so favorable treaties with Eastern Europe, through the establishment of an International Business Company in Cyprus, thus reducing or avoiding withholding taxes.
- Non-taxability of branches. These are branches of foreign companies that have management in Cyprus. Under the domestic law of the country of incorporation of the company with the branch, active income of the branch is not taxable in that country. Examples are branches of French Banks or trading or otherwise active branches of companies from the Czech Republic.
- Royalties or interest. For companies in counties which do not tax at all or in full, dividends emanating from foreign subsidiaries, the benefit for them is the ability to convert interest or royalties emanating from Eastern Europe into a dividend distribution through a Cyprus International Business Company.
- Capital gains. As mentioned earlier the treaties with the Czech Republic, Russia, Ukraine and other CIS countries provide that tax on capital gains excluding gains attributable to immovable property are paid in the country of residence of the investor. As IBCs pay no capital gains tax in Cyprus, these gains are tax free in both countries.
- Leasing. Under certain treaties lease payments can be regarded as rent and as such certain local taxes or VAT may be avoided.
Withholding Tax Rates Tables In the table below the number in brackets refer to the explanatory notes 
1. 5 percent on film and TV royalties.
2. Nil on literary, dramatic, musical or artistic work.
3. Nil if paid to government or for export guarantee.
4. For literary, artistic or scientific work, film and TV royalties, the relevant non-treaty applies.
5. Nil if paid to the Government of the other state.
6. 10 percent on literary, artistic or scientific work, film and TV royalties.
7. 10 per cent if received by a company controlling 25 per cent or more of the voting power.
8. 10 per cent on dividends received by individuals which may be refundable in some cases.
9. 10 per cent if received by a company controlling 10 percent or more of the voting power.
10. Nil if paid to a Government, bank or financial institution.
11. 5 per cent on film royalties.
12. 15 per cent if received by a company controlling less than 10 per cent of the shares.
13. 5 per cent if received by a company controlling 25 per cent or more of the voting power.
14. Nil if received by a company controlling 50 per cent or more of the voting power.
15. Nil if received by a company controlling 10 per cent or more of the voting power.
16. 5 per cent if received by a company controlling 10 per cent or more of the voting power.
17. 15 per cent if received by a company controlling less thar 25 per cent of the shares.
18. 5 per cent on patent royalties.
19. 30 per cent on payments to individuals.
20. 25 per cent on excess amount on annual payments over Ci 100.000.
21. The treaty provides for withholding taxes but Hungary does not impose any withholding taxes in accordance with its own legislation.
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