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Cyprus – Ukraine Double Tax Treaty entered into force
After the relevant notices were exchanged between the two countries, the tax treaty between Cyprus and Ukraine for the avoidance on double taxation, entered into force on the 19 August 2013. Taxand Cyprus discusses the key provisions of the new Treaty.
Double taxation avoidance
- Any taxation paid abroad shall be allowed as a deduction from the tax payable in the other contracting state for the same source of income
- The new Treaty is to adopt Article 26 OECD on the exchange of information clearly showing the willingness of the parties to follow internationally accepted tax standards and transparency
Capital gains tax
- In the case of disposal of shares, the capital gains tax arising from the disposal is granted to the jurisdiction in which the person in question is tax resident
- On interest: 2% withholding tax will be applied to interest paid by a Company which is resident in a contracting state to a resident of the other contracting state
- On dividends: the withholding tax rate on dividends is 15% - unless the beneficial owner of the shares holds a minimum of 20% of the capital of the dividend paying company or has invested in shares or other rights of the dividend paying company a total of at least €100,000, in this case the withholding tax will be 5%
- On royalties: 10% withholding tax rate is set unless the royalties are in respect of copyright, patent, trademarks etc and therefore in this instance the withholding tax rate would be 5%
The treaty and the protocol will replace the Soviet Union and Cyprus Treaty of 1982 in reference to Ukraine, and will be generally applicable from 1 January 2014.
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The new Treaty between Cyprus and Ukraine allows Cyprus to remain one of the most attractive jurisdictions for investments into Ukraine as rates and tax schemes are considered to be advantageous. Investors should estimate in each particular case how their existing or future structures and transactions will be affected by the new treaty (new rates, beneficial ownership requirements etc).