Representatives of the Cyprus and the Ukrainian governments have signed, in Kiev, on Friday, 11 December 2015, a protocol amending their Double Tax Avoidance Treaty.
The protocol is based on the Model Tax Convention for the Avoidance of Double Taxation OECD.
The changes need to be ratified by both the Ukrainian and Cypriot parliaments before they become effective. If ratified, the new rules will take effect no earlier than 1 January 2019.
The main amendments are as follows:
- Dividends. In order to be eligible for the application of a favourable 5 % rate, the taxpayer will need to both (i) own at least 20 % of the shares in the company paying the dividends and (ii) invest at least EURO 100,000 in the authorised capital of the company. At present it is sufficient to meet at least one of these criteria.
- Interest. The withholding tax rate on interest payments is increased from 2 % to 5 %.
- Capital gains. Gains derived from the sale of shares or other corporate rights will be tax exempt only if such shares or other corporate rights derive more than 50% of their value directly or indirectly from immovable property located in Ukraine (in case of sale of shares or corporate rights of a Ukrainian company). Currently there is no such restriction.
Irrespective of the withholding tax rates provided for by the amending protocol, Cyprus continues not to apply withholding tax on dividend, interest and royalty (provided the royalty relates to a right of use outside Cyprus) payments out of Cyprus, as per the provisions of the local tax legislation.
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