A Double Tax Treaty (DTT) protocol was signed on 11 December 2015 between Cyprus and Ukraine which will replace the 2012 DTT.

What is DTT?

A DTT aims to avoid double taxation between countries for businesses or individuals that perform business transactions between said countries. Such a treaty might provide that certain forms of income are exempted from income tax in the state of origin or charged at a reduced rate if receivable by the non-resident. The DTT decides which country shall have the ‘primary rights’ to tax income.

When does the new DTT come into force?

The new DTT comes into force in Cyprus and Ukraine on 1 January 2019.

Main provisions of the new DTT

Source of Income

• Dividends – Maximum 5% withholding tax (provided that the beneficial owner’s holding is at least 20% or the amount of his investment in shares is at least €100.000) and 10% in all other cases.
• Interest – Tax shall not exceed 5%.
• Royalties – Tax shall not exceed 5% in respect of patents, trademarks, and copyrights about scientific work, secret formulas, process or information relating to industrial, commercial or scientific experience. In all other cases, a 10% tax shall apply.
• Capital Gains Tax – Capital Gains from the disposal of immovable property are taxed in the state where the property is situated. In the case of the disposal of shares, where at least 50% of their value is derived from immovable property, the tax shall apply in the state where the property is situated.
• Directors fees – Taxed in the State in which the director is resident

Also, according to the new DTT, gains derived from the disposal of immovable property situated in the other state, may be taxed in that other state.

 Comparison of the new DTT vs. previous DTT

1. Dividends

Dividend payments from Cypriot Companies to Ukraine Companies or individuals

The rate of Withholding Tax, in this case, is 0% because the Cyprus Tax Law is applying a 0% rate on dividends paid from Cypriot Companies to non-tax resident Companies and individuals. As it was also applicable in the previous DTT. However, the dividend may be taxable in Ukraine.

Dividend payments from Ukraine Companies to Cypriot Companies or individuals

The rate of Withholding Tax, in this case, is at a maximum of 5%, provided that the beneficial owner is residing in Cyprus with a holding of at least 20%, or the amount of his investment in shares is at least €100.000. In all other cases, the applicable rate is 10% (previously 15%).

2. Interest

Interest payments from Cyprus to Ukraine Companies or individuals

There is no withholding tax on interest paid from Cyprus to Ukraine tax resident Companies or individuals.

Under the previous DTT, the rate of withholding tax on interest paid from Cyprus to Ukraine Companies or individuals was also 0%.

Interest payments from Ukraine to Cypriot Companies or individuals

The rate of withholding tax, in this case, is at a Maximum 5% withholding tax (previously it was set at 2%).

3. Royalties

Royalty payments from Cyprus to Ukraine Companies or individuals

There is no withholding tax in the case where the Royalty Rights were not used within Cyprus.

In the case where the Royalty Rights are used within Cyprus, there is a 5% withholding tax in respect of patents, trademarks, and copyrights concerning scientific work, secret formulas, process or information relating to industrial, commercial or scientific experience. In all other cases, the applicable withholding tax rate is 10%.

Royalty payments from Ukraine to Cypriot Companies or individuals

There is a 5% withholding tax in respect of patents, trademarks, and copyrights about scientific work, secret formulas, processes or information relating to industrial, commercial or scientific experience. In all other cases, the applicable withholding tax rate is 10%.

Royalty remains the same from the previous DTT.

4. Capital Gains Tax

For Capital Gains from the disposal of immovable property, the tax shall apply in the state where the property is situated.

In the case of a disposal of shares, where at least 50% of their value is derived from immovable property, the tax shall apply in the state where the property is situated. Under the previous DTT, these where taxed in the country where the seller is a resident.

5. Directors Fees

Directors’ fees and other related payments are taxed in the State in which the director is resident. No changes from the previous DTT.