Cyprus – Double Tax Treaty Signed with Luxembourg, Awaiting Ratification

31 May 2017

Since 2007 Cyprus and Luxembourg have been negotiating an order to agree on a double taxation treaty between the two countries. The main topics of discussion have been the development of the financial sectors in Cyprus and Luxembourg, the incorporation of the EU legislation within the national laws and the conclusion of a bilateral double taxation agreement and fiscal cooperation between the two states.

On 8 May 2016 the double taxation treaty was signed and is awaiting ratification which is expected on the 1 January 2018, if everything goes according to plan. The new treaty is based on the OECD Model Tax Convention framework (some small amendments were made).

The treaty applies to taxes on income as well as on gain from alienation of movable or immovable property. In the case of Luxembourg, the treaty covers income tax, corporation tax, capital tax and communal trade tax, whereas in the case of Cyprus, it covers corporate and personal income tax, defense tax and capital gains tax.

The following rates for withholding taxes are applicable:

  • 0% where there is at least
  • 10% participation by a tax resident company
  • 5% in all other cases

There are no withholding taxes on interest, nor on royalties (under the condition that the receiving party of the royalties is the beneficial owner of the income). Any gains resulting out of the sale of shares in immovable property rich companies are taxed in the country where the immovable property is located.