Finally, after what seems to have been quite a delay, on June 1, 2021, the Republic of Cyprus and the Kingdom of the Netherlands signed the treaty on the Elimination of Double Taxation.
The treaty is based on the OECD Model Tax Convention and its main provisions are briefly outlined below:
Dividends
A 0% withholding tax (WHT) rate applies where the recipient/beneficial owner is:
- A company that holds directly at least 5% of the capital of the company paying the dividends, throughout a 365 day period that includes the day of the payment;
- A recognized pension fund which is generally exempt under the corporate income tax law of Cyprus.
For all other cases, the DTT provides for a maximum 15% WHT rate.
Interest
A 0% WHT rate applies, as long as the recipient of the interest is the BO of the income.
Royalties
A 0% WHT rate applies, as long as the recipient of the royalties is the BO of the income.
Capital gains
Cyprus maintains the exclusive taxing rights on gains arising from the disposals of shares made by Cyprus tax residents, except in the following cases:
- the shares derive more than 50% of their value, directly or indirectly, from immovable property situated in the Netherlands;
- the shares derive more than 50% of their value, directly or indirectly, from certain offshore rights/property relating to exploration or exploitation of the seabed or subsoil or their natural resources located in the Netherlands.
The treaty includes a specific article (Article 26) limiting the entitlement of benefits if the obtainment of such benefit was one of the principal purposes of the relevant arrangement/transaction.
The signing of the treaty between Cyprus and the Netherlands is considered as significant both politically and economically, as they contribute to the strengthening of ties between the two countries and promotes Cyprus as an international business center.
AGP Law Firm | A.G. Paphitis & Co. LLC
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