We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
28 August 2015
On April 1 2015 Cyprus and South Africa signed a protocol amending their existing double tax agreement, which was signed in 1997 and has been in force since December 8 1998.
The protocol amends the following areas of the 1997 agreement:
However, the protocol does not change the highly beneficial arrangements regarding the taxation of capital gains.
The protocol aligns the definition of a 'resident of a contracting state' with the 2010 Organisation for Economic Cooperation and Development (OECD) Model Convention.
The 1997 agreement exempts dividends paid by a company in one country to a recipient in the other from withholding tax in the first country, as long as the recipient is the beneficial owner of the dividends.
Under the protocol, withholding tax may be imposed in the first country. The rate is limited to 5% of the dividend if the recipient is the beneficial owner of the dividends and owns 10% or more of the share capital of the company paying the dividend; otherwise, the rate is 10%.
Cyprus does not impose withholding taxes on dividends paid to overseas shareholders. As a result, the change affects only dividends paid by companies that are resident in South Africa.
Once the protocol has been ratified, the provisions regarding dividends will apply retrospectively from April 1 2012 - that is, the date on which taxation of dividends was introduced in South Africa at shareholder level.
The protocol aligns the provisions regarding exchange of information with the 2010 OECD Model Convention. In particular, it commits the parties to exchange such information "as is foreseeably relevant", rather than "as is necessary". An annex to the protocol sets out the detailed procedures for information exchange and provides robust safeguards against its abuse by requiring requests for information to comply with specified conditions to demonstrate the foreseeable relevance of the information requested. No request is to be submitted unless the state making the request has exhausted all reasonable means available to obtain the information in its own territory. Each request must be accompanied by the following:
Cyprus retains the exclusive taxing right on disposals by Cyprus tax residents of shares in South African companies, including shares in 'property-rich' companies that derive their value or the greater part of their value directly or indirectly from immovable property in South Africa. Most of South Africa's double tax agreements allow gains on such shares to be taxed in South Africa and the effective exemption of gains from South African tax gives Cyprus a significant advantage as a jurisdiction for holding shares of property-rich South African companies.
The protocol will enter into force when both countries complete their ratification procedures. Cyprus completed its ratification procedure on May 8 2015, but South Africa has yet to do so.
For further information on this topic please contact Philippos Aristotelous at Andreas Neocleous & Co LLC by telephone (+357 25 110 000) or email (email@example.com). The Andreas Neocleous & Co LLC website can be accessed at www.neocleous.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.