Cyprus and UK sign a new Double Tax Treaty
Cyprus and UK have recently signed a revised double tax treaty replacing the existing treaty between the two countries of 1974. The revised double tax treaty will enter into force upon completion of the formal legal procedures required in both contracting countries.
It is expected that the treaty will come into effect on the 1 January 2019 and will apply to taxes on income and gains from alienation of movable or immovable property.
In the case of the UK, the treaty covers income tax, corporation tax and capital gains tax, whereas, in the case of Cyprus, it covers corporate and personal income tax, defence and capital gains tax.
The provisions of the treaty will come into effect in Cyprus as of 1 January of the year following the year in which the Treaty will enter into force.
According to the provisions of the treaty, there will be no withholding tax on dividends, interest and royalties, provided that the recipient is the beneficial owner of the income.
In the case that dividends are paid by certain investment vehicles with income deriving directly or indirectly from immovable property, a withholding tax rate of 15% will apply.
Gains from the sale of property rich companies are taxed in the country where the property is located (except for shares of companies traded on a stock exchange.
Limitation of benefits
The revised Treaty also incorporates a clause on the limitation of benefits whereas benefits will not be granted in cases where it is reasonable to conclude that obtaining such benefits was one of the principal purposes of any arrangement or transaction.
Determination of Tax Residency of Companies
To determine the residency of a company in the case of a company which is a tax resident in both countries, the authorities will take into account the following:
where the senior management of the person is carried out;
where the meetings of the board of directors or equivalent body are held;
where the person’s headquarters are located;
the extent and nature of the economic nexus of the person to each State; and
Whether determining that the person is a resident of one of the Contracting States but not of the other State for the purposes of the Convention would carry the risk of an improper use of the Convention or inappropriate application of the domestic law of either State.