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23 January 2013

The New Double Tax Treaty Between Cyprus And Ukraine

The strategic geographic location of Cyprus makes it just the perfect investment destination for businesses and individuals operating with Europe, Near East and Africa. Cyprus is famous for the excellent climate, the well developed infrastructure and highly qualified manpower. These are just some of the advantages contributed to the success of the island as one of the best world’s business destinations.

The Cypriot society is liberal and pluralistic, but the traditions and the family are of great respect too. Cyprus has a high living standard and the crime level of the island is very low. All these make Cyprus the ideal place to live and invest. The economy of the country is based on the freedom of the private business while the Government monitors the economy and the maintenance of the communal services. Cyprus was admitted as a member of the European Union on 1 May 2004 and joined the common European currency – the Euro – on 1 January 2008. That opened new perspectives before the country’s economy.

One of the most important economic events of the 2012 was the signing of a DTT between Cyprus and Ukraine on 8th November 2012. The Agreement was signed in Nicosia during the official visit of the President of Ukraine Mr Viktor Yanukovych to Cyprus. That is the first official visit of a Ukrainian president to the island. The Agreement is going to come into force on 1st January following the year of ratification by the two countries.

The minister of finance of Ukraine Yuriy Kolobov, who was one of the members of the Ukrainian delegation to Cyprus, said before the mass media that these negotiations date back to 1997. According to Mr. Kolobov, signing the DTT with Cyprus will bring about 1 billion grivnas per year into the Ukrainian state budget. (Source: forbes.ua)

The new Agreement is based on the OECD Model Tax Convention. The most significant provisions of the new DTT are summarized below:

Capital gains

The favorable capital gains provision currently applying for property rich companies remained unaffected. The taxing right in respect of the capital gains from the disposal of shares (even in property rich companies) or other movable property is granted to the contracting state where the seller is resident. Cyprus remains the most favorable jurisdiction as far as the disposal of shares is concerned as they are not subject to any tax.

Dividends

The withholding tax rate is 5% in the case of dividends:

where the beneficial owner holds at least 20% of the capital of the company paying the dividend or,

the beneficial owner has invested in the acquisition of the shares or other rights of the company at least EUR 100,000.

In all other cases the withholding tax is 15%.

It should be noted that under the Cyprus Law no withholding taxes are imposed on dividends paid to a non-Cyprus tax resident.

Interest

The withholding tax rate on interest earned by a resident of the one contracting state from a person residing in the other contracting state is 2%.

It should be noted that under the Cyprus Law no withholding taxes are imposed on interest paid to a non-Cyprus tax resident.

Royalties

The withholding tax rate in respect of copyrights of scientific work, patents, trademarks, secret formula, process or information concerning industrial, commercial or scientific experience is 5%. In all other cases the rate is 10%.

 

Exchange of Information

The Exchange of Information is another important revision that has been incorporated in the DTT. The competent authorities can exchange information relevant to carrying out the provisions of the treaty. Any information exchanged is treated as secret and disclosed only to the parties concerned with the assessment and collection of taxes.

The Double Tax Treaty signed between Ukraine and Cyprus will ease the bilateral business stream. Cyprus is an attractive investment destination for the Ukrainian business for many years now and the revisions of the old Agreement were met with great satisfaction and met the approval of the international business society.

And more good news… earlier in 2012 the Ukrainian Foreign Ministry has reached a principal agreement on liberalization of a visa travel with Cyprus.

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