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06 February 2015
The new double tax agreement between Cyprus and Iceland, which was signed on November 13 2014, entered into force on December 22 2014. Its provisions apply to taxes withheld at source that are paid or credited on or after January 1 2015 and for other taxes in respect of taxable years beginning after that date. The agreement – the first between the two countries – is based on the Organisation for Economic Cooperation and Development (OECD) Model Convention for the Avoidance of Double Taxation on Income and extends Cyprus's network of double tax agreements to cover 53 countries. The agreement's main provisions are summarised below.
Withholding tax on dividends paid by a company resident in Iceland to a company (but not a partnership) resident in Cyprus is limited to 5% of the gross dividend, provided that the recipient is the beneficial owner of at least 10% of the shares in the company paying the dividend. Otherwise, the maximum rate of withholding tax is 10%. There are no withholding taxes in Cyprus on dividends paid to non-residents.
Interest paid by a resident of one state to a resident of the other is taxable only in the state of residence of the recipient, subject to safeguards against abuse (eg, the exemption does not apply to any excessive amount above interest on an arm's-length basis).
The maximum withholding tax on royalties is limited to 5%.
A number of capital gains provisions have been introduced:
The information exchange article follows the corresponding article of the OECD Model Convention. The usual protocol that is included in most of Cyprus's recent double tax agreements, which sets out the information that must be provided to accompany requests for information, thus ruling out fishing expeditions on the part of the tax authorities, is absent. However, Cyprus's Assessment and Collection of Taxes Law provides Cyprus residents with the same safeguards as the protocol.
The agreement includes no specific provisions regarding income and earnings from offshore hydrocarbon exploration and exploitation activities and gains derived from associated assets.
For further information on this topic please contact Philippos Aristotelous at Andreas Neocleous & Co LLC by telephone (+357 25 110 000), fax (+357 25 110 001) or email (firstname.lastname@example.org). The Andreas Neocleous & Co LLC website can be accessed at www.neocleous.com.
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