On 22 March 2018, a new Double Tax Treaty between Cyprus and the United Kingdom was signed which will replace the 1974 DTT (amended by the 1980 protocol).
What is the scope of a DTT?
The scope of a DTT is to avoid double taxation between countries. Such a treaty might provide that certain forms of income should be exempt from income tax in the state of origin or charged at a reduced rate if receivable by a non-resident. The primary function of a DTT is to avoid double taxation and to decide which country of the DTT shall have the ‘primary rights’ to tax income.
When does the new DTT come into force?
The new DTT comes into force in:
- Cyprus, on 1st January 2019
- The UK, on 1st January 2019 for withholding taxes, 6th April 2019 for income and capital gains tax and 1st April 2019 for Corporation Tax
Main provisions of the new DTT
Source of Income
- Dividends (other than dividends from tax-exempt immovable property income), Interest, Royalties – 0% withholding tax
- Dividends from tax-exempt immovable property income – 15% withholding tax
- Capital Gains Tax – Cyprus retains the exclusive taxing rights on the disposal of shares by Cyprus residents (previously not) except in the cases the shares derive:
- > 50% of their value (directly or indirectly) from immovable property income situated in the UK. This does not apply for Stock Exchange shares
- their value or the greater part of their value (directly or indirectly) from particular offshore rights/property relating to exploration or exploitation of the seabed or subsoil or their natural resources located in the UK
Also, according to the new DTT, Cyprus retains the primary rights on pension income for individuals who are Cyprus tax residents except in some cases of UK Government service pensions.
Comparison of the new DTT vs. previous DTT
1. Dividends
Dividend payments from Cypriot Companies to UK Companies or individuals
The rate of Withholding Tax, in this case, is 0%.
In the previous DTT, the rate was 15%, but there was no deduction because the Cyprus Tax Law is applying a rate of 0% on dividends paid from Cypriot Companies to non-tax resident Companies and individuals.
Dividend payments from UK Companies to Cypriot Companies or individuals
The rate of Withholding Tax, in this case, is also 0%. In the case where the Dividends relate to tax-exempt immovable property income, then the rate of withholding tax is 15%.
Under the previous DTT, the rate applicable was 15% for individuals who are tax residents in Cyprus irrespective of their percentage of holding in the UK Company. In the case where a Cypriot tax resident Company was receiving Dividends from UK Companies, and its holding in the UK Company was exceeding 10% the rate of withholding tax was 0% and 15% in the case where the holding was not exceeding 10%.
2. Interest
Interest payments from Cyprus to UK Companies or individuals
There is no withholding tax on interest paid from Cyprus to UK tax resident Companies or individuals.
Under the previous DTT, the rate of withholding tax on interest paid from Cyprus to UK Companies or individuals was also 0%.
Interest payments from the UK to Cypriot Companies or individuals
There is no withholding tax on interest paid from the UK to Cypriot tax resident Companies or individuals.
Under the previous DTT, the rate of withholding tax was 10%.
3. Royalties
Royalty payments from Cyprus to UK Companies or individuals
There is no withholding tax on Royalties paid from Cyprus to UK tax resident Companies or individuals.
Under the previous DTT, there was a 5% withholding tax on Royalties for cinematographic films including films and videotape for television only in the case where the Royalty Rights were used in Cyprus. In all other cases, the applicable withholding tax rate was 0%.
Royalty payments from the UK to Cypriot Companies or individuals
There is no withholding tax on Royalties paid from the UK to Cypriot tax resident Companies or individuals.
Under the previous DTT, there was a 5% withholding tax on Royalties for cinematographic films including films and videotape for television. In all other cases, the applicable withholding tax rate was 0%.
