Cyprus expands its Eurasian reach through the double tax treaty signed with Kazakhstan (“DTT”). The DTT effectively entered into force on the 1st of January 2021 and purports to strengthen trade and economic relations between the two countries as it addresses double taxation and prevention of fiscal evasion with respect to taxes on income.
The DTT is based on the OECD Model Convention for the Avoidance of Double Taxation on Income (“OECD Model”) and includes the following notable provisions:
The DTT provides for a definition of “permanent establishment”, which is used to determine the threshold for taxation of business profits in the source state. The said definition resembles to a great extent that under the OECD Model and includes:
- a building site, construction, assembly or installation project or any supervisory activity in connection with such site or project if it lasts for a period of more than 6 months within any 12 month period; and
- the furnishing of services, including consultancy services, by a resident through employees or other personnel engaged by the resident for such purpose or through a related party, but only where similar activities continue (for the same or a connected project) to exist within the contracting state for a period of more than 183 days in a 12 month period.
Payment of dividends is subject to:
- a maximum 5% withholding tax on dividend payments in cases where the beneficial owner of the dividend is a company (other than partnership) holding at least 10% of the capital of the company paying the dividend; and
- 15% withholding tax in all other cases.
Interest payments are subject to:
- a maximum 10% withholding tax on interest payments if the recipient is the beneficial owner of the income; and
- no withholding tax should apply on interest payment where the beneficial owner of the interest is the government of the other contracting state, a political subdivision, a central or local authority, the central bank or any other financial institution wholly owned by the government of the other contracting state.
Gains derived by a resident of a contracting state from the alienation of shares or similar interests in the capital of a company deriving more than 50% of their value directly or indirectly from immovable property situated in the other contracting state, may be taxed in that other contracting state.
No capital gains tax is due on gains derived from alienation of shares listed on an approved stock exchange.
A maximum of 10% withholding tax on royalty payments if the recipient is the beneficial owner of the income.
Other notable mentions
- Income gained by a resident of a contracting state that derives from immovable property situated in the other contracting state may be taxed in that other contracting state. The term “immovable property” should be attributed the definition provided in respect thereof by the contracting state where the immovable property is situated. In any case though, such term includes rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources.
- DTT includes provisions relating to exchange of information necessary for the purposes of the treaty. Such provisions are in line with the OECD Model.
- Any income not addressed specifically in the DTT should be taxed only in the state of residence of the recipient of income.
- Any enterprise of a contracting state which carries on offshore activities in the other contracting state will be considered to have a permanent establishment in the other. This does not include cases where the activities do not exceed in aggregate 30 days in any 12 month period beginning or ending in the fiscal year concerned.
- A DTT benefit shall not be granted in respect of income if it is reasonable to conclude, having regard to all facts and circumstances, that any such benefit was one of the principal purposes of an arrangement or transaction that resulted directly or indirectly in that benefit unless the granting thereof would be in accordance with the objective and purpose of the relevant provisions of the DTT.
The DTT is undoubtedly a step onwards for Cyprus' bilateral relations. As this is the 65th double treaty signed by Cyprus, it is highly expected to develop the position of Cyprus as an attractive investment forum.