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Cyprus Expands Double Tax Treaty Network with Spain and Portugal
These tax treaties also serve to maintain and strengthen its economic and commercial ties with other countries. Taxand Cyprus explores these new agreements and their impact on multinationals.
The double tax treaty signed with Portugal on 19 November 2012 is a step further in bilateral relations between the two countries, especially following Cyprus's removal from the Portugal's "Black List" of jurisdictions back in 2011.
The new treaty is based on the OECD Model Convention, with the withholding tax rate set for dividends, interest and royalties at 10%. Gains arising from the alienation of shares held in property rich companies may be taxed in the State in which the property is located.
The signing of the treaty, as well as the removal of Cyprus from Portugal's "black list", is expected to increase investments between the two countries. Now Portugal can leverage Cyprus as a gateway to Russia and ex Soviet Union Countries where Cyprus already have treaties in place. Cyprus can also leverage Portugal as a gateway to enter into South American countries.
Cyprus also recently signed a treaty with Spain on 14 February 2013. Again the treaty is based on the OECD Model Convention, including the latest provisions on exchange of information (art. 26). The main provisions of the treaty are as follows:
- The withholding tax on dividends is 5%
- No withholding tax on interest
- No withholding tax on royalties
- Gains arising from the alienation of shares held in property rich companies may be taxed in the State in which the property is located.
With the signing of this treaty, Cyprus is expected to be removed also from the Spanish "black list" in the near feature.
Both treaties are expected to enter into force once the latter ratification is completed, and will be applicable from 1 January of the calendar year following the year in which it entered into force.
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It is important to mention that, irrespective of the treaty provisions, Cyprus does not impose withholding taxes on payments made to non-residents on dividends, interest and royalties (for royalties if the rights exercised outside of Cyprus). Gains from securities are exempt from taxation, as well as the gains from immovable property situated outside of Cyprus. In addition, tax sparing credit provisions are included in Cyprus's domestic legislation, which allows relief from double taxation. Multinationals with operations in Cyprus and Portugal or Spain stand to benefit.