A number of Double Tax Avoidance Agreements (DTAAs) which were signed during the last couple of years are very close to being fully ratified and put into force. The most notable ones are those with Spain, Portugal and Estonia.
The new agreements follow the OECD model treaty, with articles including the exchange of information provisions. This actively demonstrates Cyprus’ commitment to transparency and cooperation with other EU Member States. At the same time articles have been included that safeguard against abuse of these provisions, giving investors the necessary confidence over DTAA application.
These actions resulted in the removal of Cyprus from the ‘black list’ of “tax haven” countries by Portugal back in 2011; it is expected that Spain will also follow suit once the new treaty comes into force.
With Cyprus retaining its attractiveness as a first class investment and asset holding jurisdiction, the latest developments open a number of new opportunities and markets for using Cyprus to this effect.
Status: Approved by the Spanish cabinet in August 2013 and forwarded to Spanish parliament for ratification. It will come into force once the ratification process completes and apply from the 1 January following the year in which it is ratified.
Key themes on Withholding taxes: 5% on dividends, nil on interest and royalty payments.
Status: The new double tax treaty entered into force August 16th, 2013 and applies from January 1st, 2014.
Key themes on Withholding taxes: 10% on dividends, interest and royalties.
Cyprus removal from the ‘black list’ will mean that tax treatment of holdings by Cypriot owners will normalise. The most important ones are:
- Portugal’s CFC rules should generally not apply to Cypriot companies;
- Payments made by Portuguese entities to Cyprus entities will be generally deductible for Portuguese tax purposes;
- Cyprus entities will be able to benefit from Portugal’s capital gains tax exemption under the normal rules;
- Interest income and capital gains from registered debt securities generally will be exempt from Portuguese tax; and
- The real estate tax payable by Cyprus owners and/or acquirers of Portuguese property will apply at the standard rates.
This is the first double tax treaty to be applied between the two countries.
Status: The treaty has been ratified by both countries’ parliaments, and is therefore expected to be in force January 1st, 2014.
Key themes on Withholding taxes: Nil on dividends, interest and royalties.
Corporate structuring opportunities
All three treaties provide for the taxing rights on share disposal gains and on value appreciation gains to rest with the country of residence of the seller, except where the company whose shares are under consideration is property rich, in which case the taxing right remains with the country where the property is situated. The DTAAs therefore open up opportunities for structuring investment holdings from Cyprus.
Spain and Portugal have a number of favourable treaties with countries in Africa and Latin America. The latest developments in the double tax agreements enable Cyprus to be used as an ultimate holding jurisdiction, or as an intermediate umbrella holding company for investments made into these countries. In most cases there are no outward withholding taxes from Cyprus, and no tax on profits made from disposal of shares - allowing for tax efficient exits.
Estonia is a magnet for investment by Nordic countries, mainly from Sweden and Finland. The country joined the Euro on January 1st, 2011, and already plays a leading role in a number of EU projects involving information technology and innovation. Even before the treaty was ratified, Cyprus was the most popular jurisdiction for Estonian companies to invest in. The new DTAA establishes a stable and secure path for even more investments into and out of Estonia from Cyprus.
Example Holding Structures
C. Software Applications Royalty Management
|A. Transportation company in Spain
|B. Oil & Gas Investment Holdings in Mozambique
How Amicorp can assist
Amicorp Cyprus is available to assist with any queries you might have, help you understand and explore the opportunities that may arise for your business as a result of the new treaties.
Furthermore, we can:
- assist in the set-up and maintenance of Cyprus entities, and
- coordinate with Amicorp offices and selected advisors worldwide in presenting you with turnkey solutions that will fulfil your structuring requirements.
For further information and assistance in structuring investments to and from the above mentioned countries, contact your nearest Amicorp office or Amicorp Cyprus directly.