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Cyprus and Ukraine Sign Double Tax Treaty
On 8 November 2012, the governments of Cyprus and Ukraine signed a new Double Tax Treaty (DTT). Taxand Cyprus and Taxand Ukraine comment on how this may affect investors investing in Ukraine via Cypriot companies.
It is expected that Cyprus will still remain a competitive jurisdiction for investment to Ukraine due to the domestic taxation regime that Cyprus offers. Namely, Cyprus will not impose any Corporate Income Tax (CIT) nor any Special Defence Contribution (SDC) on the dividends paid from the Ukrainian Company. Similarly on the distribution of dividends by the Cypriot Company to the shareholders, there will be no WHT imposed, as the domestic legislation does not impose any WHT.
It is of utmost importance to mention that gains realised by Cyprus residents from the alienation of shares in Ukrainian real estate companies will not be taxed in Ukraine. In practical terms this means that when a Cypriot Company has a shareholding participation in an Ukrainian Company, that possesses immovable property located on Ukrainian soil, on the sale of such shares, it is Cyprus that has the right to impose Capital Gains Tax. However, Cyprus does not impose any Capital Gains Tax on the sale of securities (including shares), provided that the company does not own immovable property located in Cyprus.
Investors should estimate in each particular case how their existing or future structures and transactions would be affected by the new treaty (new rates, beneficial ownership requirement). While doing so, it is also necessary to keep in mind the opportunities offered by Cyprus for investors such as the domestic taxation regime and tax exemption for capital gains realised on sale of shares in Ukrainian real estate companies.
Your Taxand contacts for further queries are:
T. +357 22 699 222
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