The Verkhovna Rada of Ukraine ratified the Double tax treaty with Cyprus

09 July, 2013 Newsletters

The Verkhovna Rada of Ukraine adopted as the basis and in general the draft law under the No. 0024 “About the ratification of Convention between the Government of the Republic of Cyprus and the Government of Ukraine for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and the Protocol to it”.

Let us remind that the Treaty and the Protocol were managed to be signed in autumn of the last year, namely on November 8, 2012, by the Presidents of Ukraine and Cyprus. From the moment the Convention come into force, the Convention between the Government of the Republic of Cyprus and the Government of the USSR for the Avoidance of Double Taxation of Income and Property which was signed on 29.10.1982 will be terminated.

As referred in the explanatory memorandum, as a result of the conclusion of the Treaty entrepreneurs of both countries will ensure that incomes derived from business activities in the territory of another country as well as from sources in that other country in the form of dividends, interests and royalties are not a subject for double taxation.

The Treaty also guarantees that the entrepreneurs of one State shall be taxable in another state under the same conditions as the entrepreneurs of that other State. It is determined that taxes on income are all taxes imposed on total income or on elements of income, including taxes on gains from the assignment of movable or immovable property and taxes on the total amount of wages or fees paid by enterprises.

In addition, the Treaty provides that the taxes covered by the document, among other things, are:

  • in Ukraine: corporate income tax and personal income tax;
  • on Cyprus: income tax, corporate income tax, special contribution for the defense of the Republic and tax gained from the assignment of property.

This Treaty shall be also applied to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of this Treaty in addition to or in place of the existing taxes. The competent authorities of the Contracting States shall notify each other of any substantial changes which have been made in their taxation laws.

The Treaty envisages such tax rates on basic incomes:

  • dividends: 5/ 15 % ( the lower tax rate is applicable if the recipient of the dividends owns at least 20 % of the capital of the company paying the dividends or his investment in this company is not less than 100,000 euros);
  • interests: 2 %;
  • royalty: 5/ 10 % (5 % rate is applicable for royalties in respect of works of science, patents, trademarks, secret formulas, processes or information concerning industrial or commercial experience, and 10% rate is applicable for another kinds of royalties (including literary and musical works, films, computer programs);
  • incomes from sale of shares (including shares which cost is related to real estate) are released from taxation.

The Treaty will be applied beginning from January 1 following the year of ratification (that isexpectedfromJanuary 1, 2014).

The English version of the new Treaty (which is provided by our colleagues from WTS World Tax Service Cyprus Ltd) is available by the link.

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.

Kind regards,

© TOV "KM Partners", 2013

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