Cyprus-Luxembourg setting grounds for stronger economic and commercial cooperation: Double Taxation Agreement

The Republic of Cyprus and the Grand Duchy of Luxembourg signed a double taxation avoidance agreement on 8 May 2017. This is the first such agreement between the two countries (Luxembourg was one of the few European countries which Cyprus had no such agreement with) and sets a good basis for economic and commercial cooperation between the countries.
It is understood, although the actual text of the agreement has not yet been made public, that the agreement is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and Capital, it incorporates the minimum standards of the BEPS Project and includes therein the Model Convention articles on exchange of financial and other information. It is based on and incorporates the principles and reflects the provisions of the EU Directive on Parents and Subsidiaries (90/435/EC) and the EU Directive on Interest and Royalties (2003/49/EC).

The word in the media is that the agreement provides for the following with respect to withholding taxes:
1. DIVIDENDS: NO withholding tax in the case where there is a minimum participation by a company which is a tax resident and;
2. DIVIDENDS: 5% withholding tax in other cases;
3. INTEREST: NO withholding tax;
4. ROYALTIES: NO withholding tax provided the recipient is the beneficial owner of the income;
5. SALE OF SHARES: Profits from the sale of shares related to immovable property will be taxed in the country where the immovable property is located.

The agreement will come into force once both countries have ratified it and complied with all domestic ratification procedures. It is anticipated that this will be on 1 January 2018.

For further information, please contact Soulla Dionysiou at Dionysiou & Partners LLC at / +357 22 272360.


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