31 March 2018
Cyprus and the UK today signed a new double tax treaty to replace that which was signed between the countries in 1974 which, once ratified, will be become effective as from 1 January 2019. The new treaty is a modified version of the OECD Model Tax Convention framework and applies to taxes on income as well as on gains from alienation of moveable or immovable property. The treaty covers income tax, in the UK’s case, as well as corporation tax and capital gains tax, whilst it covers corporate and personal income tax, the defense tax and capital gains tax in Cyprus’ case.
Neofytos Neofytou, Head of Tax Services of Baker Tilly in South East Europe, commenting on the provisions of the newly signed treaty, said that “as far as Cyprus is concerned, UK is one of its major trading partners, both in term of goods and services. There are strong ties between the two countries, with more than 250,000 people of Cypriot origin living and working in the UK and many British people living in Cyprus, mainly retired people. In addition, the UK universities are one of the major destinations for young Cypriots wishing to study abroad.
The existing double treaty between Cyprus and the UK dates back to 1974 and a lot of things changed in the domestic and international business and tax environment since then. With Brexit coming up next year and the elimination of the benefits under the various EU tax related directives, the new tax treaty, which eliminates all withholding taxes in respect of dividends, interest and royalties paid from one country to tax residents int eh other country, maintains and even improves the benefits of doing business between taxpayers located in the two jurisdictions, with particular emphasis in the financial services, the technology and the shipping industry sectors.
The new treaty contains provisions for limitation of benefits in case of treaty shopping, in line with recent EU and OECD tax developments.”