A new treaty has been signed between Cyprus and the UK, which replaces the treaty signed between the two countries in 1974. It is expected that the new treaty will soon be ratified, and therefore come in to effect as of 1 January 2019.
Based on the OECD Model Tax Convention, the treaty applies to taxes on income as well as gains from alienation of movable or immovable property. In the case of the UK, the treaty covers the income tax, the corporation tax and the capital gains tax; whereas in Cyprus, it covers corporate and personal income (including pensions), as well as for domestic special defense tax.
The treaty assures the elimination of withholding tax on dividends, where the recipient is the beneficial owner of such income; except where dividends are paid out of income and/or gains derived directly or indirectly from immovable property, defined in accordance to the law of the contracting state, by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempt from tax in which case a withholding tax of 15% applies (other than where the beneficial owner of the dividends is a pension scheme established in the other Contracting State).
There is no withholding on interest or royalty payments; such payments being subject to beneficial ownership criteria.
There is a limitation on benefits provision under the treaty in Art. 23 (Entitlement to Benefits), which states that no benefit will be granted in respect of an item of income or a capital gain if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit.
For further information, please contact Richard Melton, Business Development Director at Vistra Cyprus.