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New Cyprus DTAs Take Effect

by Lorys Charalambous,, Cyprus

03 January 2014

Andreas Neocleous & Co LLC report from Cyprus that new double taxation avoidance agreements with Estonia, Finland, Portugal, Spain and Ukraine have taken effect, with others in the pipeline.

On January 1, 2014 five new agreements for the avoidance of double taxation (DTAs) between Cyprus and other countries took effect. The new agreements are with Estonia, Finland, Portugal, Spain and Ukraine. The first four are entirely new agreements, extending Cyprus's network of DTAs, and the agreement with Ukraine replaces the agreement between Cyprus and the USSR, which had been adopted by Cyprus and Ukraine following the dissolution of the USSR. All the new agreements follow the OECD Model Convention.

The new DTAs with Estonia, Finland, Portugal and Spain are expected to lead to a substantial expansion of economic ties and reciprocal investment activities between Cyprus and the countries concerned. Furthermore, according to the Ministry of Finance, new agreements with Norway and Switzerland are expected to be signed in the next few weeks, and negotiations on a new agreement with Malaysia are also at an advanced stage.

The revised agreement with Ukraine retains one of the principal benefits of the DTA it replaced, namely the highly favourable provisions regarding capital gains on disposal of shares in property-rich companies. Movable property including shares is taxable only in the country of residence of the owner, and since Cyprus imposes no tax on disposals of shares except and to the extent that the gain is derived from real estate in Cyprus, Cyprus companies have become an ideal means of holding real estate in Ukraine, effectively allowing property to be disposed of tax-free.

Most of Ukraine's other DTAs include a provision allowing gains from the disposal of property-rich companies to be taxed in the contracting state in which the property is located, and it was widely feared that a provision of this nature would be introduced into the new agreement with Cyprus. However, this fear has proved to be unfounded. Gains on disposals of movable property remain taxable only in the contracting state in which the disponor is resident, making Cyprus one of the world's most tax-effective jurisdictions for holding Ukrainian property assets.

TAGS: Finance | tax | investment | Portugal | Estonia | Norway | agreements | Cyprus | Finland | Malaysia | Spain | Switzerland | Ukraine

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