On 8.11.2012 the Government of Ukraine and the Government of the Republic of Cyprus signed a new convention for the avoidance of double taxation (the “Convention”).
The draft of the Convention was approved by the Cabinet of Ministers of Ukraine in November 2012 and on 16.05.2013 a draft law was submitted for ratification by the Ukraine parliament (Verkhovna Rada). The Convention has already been ratified in Cyprus and was published in the official Government gazette on 22.03.2013.
The Convention is based on the general principles of the OECD Model Tax Convention on Income and Capital and provides for taxation at source of:
- Dividends
- at 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) that directly holds at least 20% of the capital of the Ukrainian company paying the dividends or has invested the equivalent of at least EUR 100,000 in the acquisition of shares or other rights in the company, and
- at 15% of the gross amount of the dividends in all other cases.
- Interest
- at 2% of the gross amount of the interest if the beneficial owner of the interest is a resident of Cyprus; and
- Royalties
- at 10% of the gross amount of the royalties if the beneficial owner of the royalties is a resident of Cyprus, and
- at 5% of the gross amount of the royalties paid in relation to scientific works, any patent, trademark, secret formula, process or information concerning industrial, commercial or scientific experience (with no requirement regarding beneficial ownership).
It should be noted that Ukrainian withholding tax on interest or royalty payments can however, in some circumstances, be set off against the Cypriot tax attributable to the respective types of such income.
Likewise, Capital gains of a Cypriot company derived from disposal of shares in a Ukrainian real estate company continue to be exempt from taxation in Ukraine.
Even with the anticipated increase of withholding tax rates on income paid from Ukraine to Cyprus under the new Convention, such rates continue to be competitive and indeed lower, comparable to rates imposed with Ukraine’s double tax treaties with other countries.
Theodorou Law is a Cyprus law firm with Cyprus lawyers and other legal experts on legal matters involving Cyprus law, EU law and international law. The above should be used as a source of general information only. It is not intended to give a definitive statement of the law and is subject to the disclaimer
Our firm routinely answers queries from individuals and corporate clients on tax law. If you have a query or wish to receive further information, please contact us using [email protected]
