Cyprus-Ukraine Tax Treaty

Cyprus Signed new Double Tax Treaty with Ukraine

On 8th November 2012, Cyprus and Ukraine signed a Convention (Tax Treaty) for the avoidance of double taxation and the prevention of fiscal evasion that when in force will replace the existing Tax Treaty.

Following the signature of the new Treaty, the economic interaction between the two countries will be enhanced and furthered as the new Treaty will be a significant instrument for bilateral investment.

The new Treaty includes numerous beneficial provisions. The main provisions of which are summarized below:

Articles 10: Withholding tax on dividend payments

A reduced withholding tax on dividends of 5% is granted, where the company receiving the dividend owns at least 20% in the capital of the paying company or has invested an amount of at least EUR 100.000. In all other cases a withholding of 15% will apply.

Articles 11: Withholding tax on interest payments

A reduced withholding tax of 2% on interest payments will apply.

Articles 12 : Withholding tax on royalty payments

A reduced 5% withholding tax in respect of the use or the right to use of any patent, trade mark, secret formula, process or information concerning industrial, commercial or scientific experience will be apply under the new Treaty. In all other cases a general withholding tax on royalties of 10% will apply

Article 13: Capital Gains

Most importantly under the provisions of the new Treaty any gains from the sale of shares, will only be taxed in the country of residence of the seller of the shares, even in the case where the assets of the company derive their value wholly from real estate.

Article 24 : Exchange of Information

The new Treaty incorporates the latest version of Art.26 OECD on the exchange of information, illustrating Cyprus' commitment to internationally accepted tax standards and transparency. Nevertheless, the Protocol to the Treaty clearly stipulates all the necessary procedural steps relating to a request for information, thus affording to taxpayers maximum protection against the possible misuse of the clause.

Entry into effect

The new Treaty will come into effect once the ratification procedure is completed by both countries. If this procedure is completed before 31st December 2012, it would apply from 1st January 2013. Otherwise, the entry into effect will be postponed until 1st January 2014.

New treaty raises prospects for further economic cooperation

The new Treaty safeguards Cyprus' dominant position as the primary investment route into Ukraine and will continue to act as a gateway for Ukrainian investors into the EU.

The combination of the beneficial provisions of the New Treaty with the existing advantageous provisions of the Cyprus tax system which amongst others offers a 10% corporate tax rate, imposes no tax on profits from the sale of shares and other securities, imposes no withholding tax on dividends and imposes no tax on immovable property situated abroad alongside with recently introduced provisions such as the deductibility of acquisition costs and the new IP Regime, is expected to continue the momentum for international tax planning through Cyprus.

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