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09 October 2015
After negotiations that lasted several years, the first double tax agreement between Cyprus and Iran was signed on August 4 2015. Like all of Cyprus's recent double tax agreements, it closely follows the 2010 Organisation for Economic Cooperation and Development (OECD) Model Tax Convention. The agreement covers taxes on income only, including
The OECD Model Convention provision on capital is not included in the agreement.
The maximum rate of withholding tax that may be imposed on dividends paid to a resident of the other contracting state that is the beneficial owner of the dividends is 10%. If the beneficial owner is a company (but not a partnership) which directly holds at least 25% of the capital of the company paying the dividends, the maximum rate is reduced to 5%.
The maximum rate of withholding tax that may be imposed on interest paid to a resident of the other contracting state that is the beneficial owner of the interest is 5%.
Cyprus imposes no withholding taxes on dividends and interest, so these maximum rates are effectively for Iran-resident companies paying dividends or interest to Cyprus residents.
The maximum rate of withholding tax that may be imposed on royalties paid to a resident of the other contracting state that is their beneficial owner is 6%.
The following may be taxed in the contracting state in which they are located:
Gains from the disposal of any other property are taxable only in the contracting state in which the disponor is resident.
Double tax is eliminated by the credit method.
The agreement provides for the exchange of information that is "necessary", rather than "foreseeably relevant" for carrying out its terms. The significance of this wording and how it is interpreted will become clear over time.
The final two paragraphs of the OECD Model Convention's information exchange provision do not appear in the agreement. These paragraphs force one contracting state to gather information requested by the other – even though the first state may not need the information itself – and not to decline requests for information on the grounds that it is held by a bank.
The OECD Model Convention provision on mutual assistance in the collection of taxes is not included in the agreement.
The agreement will enter into force once both countries have ratified it. Cyprus ratified the agreement on August 25 2015, but Iran has not yet done so. Its provisions will take effect in Cyprus on January 1 2016 and in Iran on the following Farvardin 1 (the first day of the year according to Iran's official calendar, which occurs around March 21).
The agreement may be terminated by notice given by either contracting state at least five years after the agreement has entered into force.
Iran is a major regional economy and the conclusion of a double tax agreement when it is improving its relationship with the West is particularly fortunate, as it provides opportunities for investments in Iran to be channelled via Cyprus.
For further information on this topic please contact Philippos Aristotelous at Andreas Neocleous & Co LLC by telephone (+357 25 110 000) or email (firstname.lastname@example.org). The Andreas Neocleous & Co LLC website can be accessed at www.neocleous.com.
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