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Cyprus signed Double taxation agreement with Ukraine
Saturday, April 13, 2013
 

The new tax treaty between Cyprus and Ukraine, which will replace the old treaty with the USSR, was signed on 8 November 2012 during an official visit of the President of Ukraine in Cyprus. The new treaty is taxpayer-friendly and maintains Cyprus's status as among the most beneficial of Ukraine's treaty partners.

The new agreement will enter into force when both states have exchanged notifications that the necessary ratification procedures have been completed. Its provisions will apply to tax years beginning from 1 January of the following calendar year. It is unlikely that the requisite notifications will be exchanged before the end of 2012, so the new agreement is likely to enter into force some time during 2013 and apply to tax years beginning after 31 December 2013. Until then the old Cyprus-USSR agreement will remain in effect.

The most significant provisions of the treaty are highlighted below:

• The new agreement follows the 2010 OECD Model Tax Convention and the wording of certain articles, such as that relating to permanent establishments, is different from that of the old Cyprus-USSR treaty. With respect to the definition of a permanent establishment, under the treaty a building site or construction or installation project or any supervisory activities in connection with such site or project constitutes a permanent establishment only if it lasts more than 12 months.

• Immovable property includes property ancillary to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships, boats and aircraft are excluded.

The old Cyprus-USSR agreement provided that income from immovable property belonging to a resident of one contracting state and situated in the other would be liable to taxation only in the country where the property was located. The new agreement is more unclear, providing that such income "may" be taxed in the country in which the property is located but not ruling out taxation in the country in which the taxpayer is resident. Income from immovable property is defined as income from the use or letting of such property, and so appears to exclude gains from the disposal of property.

• The withholding tax rate on dividends is 5% if the beneficial owner holds at least 20% of the capital of the dividend paying company or has invested in the acquisition of shares or other rights of the dividend paying company of at least €100,000. In all other cases the withholding tax rate is 15%.

• The withholding tax rate on interest is 2%.

• The withholding tax rate on royalties in respect of any copyright of scientific work, any patent, trade mark, secret formula, process or information concerning industrial, commercial or scientific experience is 5%, and 10% in all other cases.

• With respect to capital gains arising from a disposal of shares (irrespective of the underlying assets of the company in which the shares are being disposed of) or any other movable property, taxing rights are granted to the State in which the person making the disposal is tax resident.

• With respect of the exchange of information Article 24 of the new agreement reproduces Article 26 of the OECD Model, but is modified by a Protocol, which requires any request for information to be supported by the following details, in order to demonstrate the foreseeable relevance of the requested information:

1.       The identity of the person under examination.

2.       A description of the information requested and the form and manner in which the requesting state wishes to receive it.

3.       The tax purpose for which the information is sought.

4.       The reason for believing that the requested information is held by in the contracting state to which the request is addressed, or is in the possession or under the control of a person within its jurisdiction.

5.       The name and address of any person who may hold the information requested, if known.

6.       A declaration that the provision of such information is in accordance with the legislation and the administrative practices of the requesting state and that where the requested information is found within the jurisdiction of the state in question, the relevant authority may obtain the information according to its laws and according to the terms of its ordinary administrative practices.

7.       A declaration that the contracting state making the request has exhausted all other reasonable means of obtaining the requested information.

Information will be provided only if the contracting state requesting the information has reciprocal provisions for providing information of the same nature.

Should you require more information regarding the above please to do not hesitate to contact us at: info@istosglobal.comor +357 22 256324.


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