Cyprus Double Tax Treaties
Cyprus has entered into almost 50 double-tax
treaties (unusually for a low-tax jurisdiction). The general
effect of these treaties is that Cyprus-registered offshore
entities that have tax exemptions in Cyprus will have the
same exemptions in the treaty countries (see Tax-Sparing Provisions below).
Most of Cyprus's treaties follow the OECD Model
Convention, although the US Treaty follows the most recent
model of United States Agreements. Normally speaking, therefore,
the country of residence will give a credit for taxes paid
in the other treaty country. The Cyprus offshore entity qualifies
for treaty protection under all the extant treaties except
those with Canada, France, the UK and the USA, and even in
those cases the limitations apply only to flows of income
to Cyprus, and not to income flows from Cyprus to the countries
Revisions to Cyprus's corporate tax regime
consequent upon its accession to the EU, and the abolition
of the 'offshore' sector as such, have made Cyprus more rather
than less attractive as a tax treaty partner, and the island
has found itself needing to revise many of its treaties as
a result, as well as entering new treaties with additional
The German Ministry of Finance announced on
September 1, 2009, that it had initialled the text of a revised
double taxation agreement with Cyprus to allow for the exchange
of information on tax matters between the two countries’
tax authorities, in accordance with Article 26 of the OECD
Upon entry into force, the agreement will allow
the respective countries' tax authorities to request information
pertaining to tax crimes, and in civil tax matters. The Ministry’s
statement recognized Cyprus’ commitment to implementing
the internationally-agreed standard.
The agreement will enter into force when both
countries have signed and concluded their individual ratification
The Cyprus/Germany DTA was also updated. In
July, 2005, with one of the more significant outcomes of the
revision being a clarification of taxation in the shipping
sector. According to the amendment, profits from international
ships and aircraft in international traffic "shall be taxable
only in the Contracting State in which the place of effective
management of the enterprise is situated".
The agreement also clarified the taxation of
ships' crews, who were to be taxed according to the residential
status of their employer, rather than according to an individual
crew member's residential status, and included provisions
which seek to prevent fiscal evasion.
Cyprus has signed a number of other double taxation
avoidance agreements in recent years (see the table below
for a list of tax agreements signed by Cyprus):
In May 2001, Cyprus announced that it had entered
into double tax negotiations with Iran, the Seychelles, Lebanon
and Armenia. Talks were also concluded with Indonesia.
In February, 2003, the Cypriot government said
it had signed an agreement for the avoidance of double taxation
with Lebanon. According to a government statement released
at the time, the agreement was signed in Beirut by Cyprus'
Finance Minister, Takis Klerides, and his Lebanese counterpart,
Fuad Siniora, and was designed to prevent both double taxation
and fiscal evasion with regard to taxes on income and capital.
In November, 2005, the Foreign Minister of
San Marino, Fabio Berardi, who was in Cyprus on an official
visit, met then President Tassos Papadopoulos and signed a
protocol designed to lead to a Double Tax Avoidance Treaty
between the two countries.
In July, 2006, the governments of Cyprus and
the Seychelles agreed to a new bilateral pact which aimed
to prevent the double taxation of income, and boost investment
flows between the two countries.
The agreement was signed in the Seychelles
by the Seychelles' Minister for Economic Planning and Employment,
Jacquelin Dugasse, and the Cypriot Minister for Finance, Michalis
“The signing is for us in Seychelles very important
as it provides the framework which will enable businesses
in our two countries to exploit the business ties and cooperation
which exist,” Minister Dugasse commented after the formalities
had been completed.
In November 2008, the Qatari Prime Minister
Sheikh Hamad bin Jassim al Thani visited Nicosia to ratify
several bilateral agreements and Memoranda of Understanding
between Qatar and Cyprus, including an agreement on the avoidance
of double taxation.
Seven agreements in all were ratified, including
agreements for the avoidance of double taxation, tax evasion,
economic and technical cooperation and the promotion and protection
of international investment.
Memoranda of Understanding were also signed
to intensify cooperation between both countries' tourism,
health and immovable property sectors. An additional Memorandum
of Understanding was also signed between the central banks
of Cyprus and Qatar for cooperation in the monitoring of money
In the summer of 2010, The Italian Ministry
of the Economy issued amendments to the relevant legislation,
by which Malta and Cyprus have been removed from the country’s
‘blacklist’ of tax havens.
The Ministry has made the appropriate changes
to all three lists of countries considered to have tax systems
which favour the avoidance of taxation - that concerning the
residence of individual taxpayers; the list valid within the
tax legislation concerning controlled foreign companies (CFCs);
and that regarding the non-deductibility of corporate costs
Malta and Cyprus, which are also full member
states of the European Union, will now have fully ordinary
fiscal status as far as the Italian tax system is concerned.
In particular, with effect from this tax year, those Italian
individuals who have attempted to transfer their residence
to one of those countries will not have a continued presumed
residence in Italy, while there will be no additional tax
consequences for those Italian businesses with subsidiaries
or associated companies in Malta or Cyprus.
The changes to the lists are also significant
with regard to the new Italian value-added tax (VAT) reporting
requirements that were announced in April, for all 'risky'
import and export transactions above EUR50,000 (USD65,400),
particularly those transacted with countries considered not
to have a sufficient level of tax information exchange.
Under the new rules, the details of transactions
in goods and services from companies or individuals having
an establishment, residence or domicile in those countries
will have to be forwarded electronically to the Italian Revenue
In September 2010, Panama’s President,
Ricardo Martinelli met with his Cypriot counterpart, Demetris
Christofias, to discuss improving economic cooperation, including
through the signing of a convention for the avoidance of double
taxation and fiscal evasion.
Negotiations for an agreement between Cyprus
and the United Arab Emirates on the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with respect to Taxes
on Income were concluded successfully in Nicosia in October
2010. The agreement was initialled in June 2010 and according
to the Cypriot government "negotiations were held in
a friendly atmosphere and in a climate of perfect cooperation."
In November 2010, the Prime Minister of Ukraine,
Mykola Azarov called for the renegotiation of the double tax
agreement between Ukraine and Cyprus while meeting with the
President of the Cypriot House of Representatives, Marios
"For many years we have negotiated the
signing of the convention on avoiding double taxation. Ten
years ago when I worked as the Head of Tax Administration
I started to deal with that matter. I think it's time to put
an end to this process and to sign an agreement," Azarov
Azarov said that the renegotiated convention
for the avoidance of double taxation (replacing the treaty
inherited from the former Soviet Union) would be signed on
a forthcoming visit by the Cypriot Finance Minister.
In July 2011, Luxembourg’s Finance Minister Luc Frieden
conducted an official visit to Cyprus at the invitation of
his Cypriot counterpart Charilaos Stavrakis, with the talks
focussing on strengthened fiscal cooperation by means of a
future bilateral tax agreement.
According to the Luxembourg government, during the course
of the meeting, the ministers exchanged views on recent developments
in their respective financial sectors and on European and
national legislation in this area. Within this context, Cyprus
and Luxembourg agreed to initiate negotiations seeking to
conclude a bilateral double taxation agreement (DTA) between
the two countries, in a bid to strengthen cooperation between
the two financial centres.
The Cyprus/Russia Double Tax Agreement
In December, 2005, the head of the Russian
tax service, Anatoly Serdyukov, announced that double taxation
avoidance agreements would be reviewed to prevent companies
from avoiding tax by registering offshore, and to "protect
Russia's economic interests". According to Mr Serdyukov, the
federal budget was deprived of more than USD2bn in unpaid
profit tax by oil firms during 2004 because the owners of
these firms are resident for tax purposes in low tax jurisdictions,
such as Cyprus.
"We think it would make sense to check all
agreements on double taxation avoidance to protect Russian
economic interests and see whether they correspond to current
legislation," Mr Serdyukov reportedly told a meeting of the
The Russia/Cyprus tax treaty once again became
the focus of attention when the Russian authorities launched
tax evasion proceedings against a prominent foreign hedge
fund manager. It was alleged that Kameya, a Russian company
advised by Hermitage Capital, the largest foreign hedge fund
in Russia, had failed to pay the correct amount of tax on
a dividend paid to the controlling shareholder of a Cypriot
registered firm in May 2006.
In April 2009, Russia and Cyprus signed a new
double taxation avoidance agreement which finally secured
Cyprus's removal from the notorious Russian 'blacklist' of
jurisdictions which have not demonstrated a sufficient level
of cooperation with the Russian tax authorities.
The protocol, the result of several years of
hard bargaining, was signed in Nicosia by Finance Minister
Charilaos Stavrakis and Ilya Trunin, a senior tax official
in the Russian Finance Ministry.
The pre-existing tax treaty between Russia and
Cyprus was one of the major reasons for the huge flow of Russian
investment through the Mediterranean island in recent years.
In 2006, 21.6%, or USD28bn, of the USD130bn total accumulated
investments in Russia came via Cyprus, while Russian deposits
in Cypriot banks are said to exceed USD26.35bn.
In 2008, Russia added Cyprus to a 'blacklist'
of 54 countries (since reduced in number), on the grounds
that it was an ‘uncooperative territory’. This
blacklist was part of an amendment to the Russian tax code
which introduced a tax exemption on the repatriation of dividends
from foreign subsidiaries of Russian companies under certain
circumstances. Russian subsidiaries based in territories and
countries on the so-called blacklist were not included in
Many European countries such as Ireland, Luxembourg
and Switzerland successfully lobbied the Russian government
to be removed from the blacklist, but Cyprus remained on the
list due to its apparent failure in the past to fulfil requests
for information from the Russian tax authorities in certain
cases. According to Stavrakis, Cyprus's name was to be erased
from the blacklist thanks in large part to a commitment by
Nicosia in 2008 to improve exchange of information provisions.
Stavrakis said that the new agreement maintains
"the very low and competitive factors Russians are enjoying
today concerning investments through Cyprus" although
he conceded that Russia succeeded in winning "a significant
number of concessions" that they had been asking for.
A major concession won by Russia will see capital
gains made by Russian subsidiaries of Cypriot holding companies
with more than 50% of their assets in Russian property taxed
at the prevailing rates in Russia.
Trunin remarked that the amendments ensure that
the double tax agreement will not be used "in an inappropriate
way" by residents and investors in Cyprus and Russia,
but would nevertheless result in Cyprus's removal from Russia's
"list of offshore jurisdictions" which he stopped
short of calling a "blacklist."
However, at the behest of President Medvedev,
the Russian Ministry of Finance prepared an amendment to Article
7 of the Tax Code in late 2009 to crack down on tax avoidance
by means of offshore companies set up to benefit from lower
tax rates granted under double taxation treaties.
The primary objective of the legislation would
be to deny Russian residents who set up offshore companies
for the purposes of tax avoidance the benefit of lower treaty
withholding tax rates.
Russian business has tended to favour Cyprus
as the preferred location for setting up offshore companies
owned nominally by local lawyers or accountants; as a result
of the double taxation treaty between Russia and Cyprus the
Russian company can remit dividends to such offshore companies
subject to a withholding tax of only 5% compared with usual
Russian tax of 15%, and remittances of royalties and interest
are free of Russian tax, compared to 20% within Russia.
According to Russian official statistics quoted
by Vedomosti, Russia received USD56.9bn in foreign investment
from companies registered in Cyprus last year, or 22% of total
inward investment, and in the first nine months of this year,
the figure was USD5.2bn, or 10% of the total.
After changes to the double-tax agreement with
Cyprus are ratified by the Russian government, the Russian
tax authorities will be able to request information from their
Cypriot counterparts about beneficial ownership of companies,
in line with standard modern tax information exchange conditions.
Speaking at the Fifth All-Russia tax forum of
Chambers of Commerce, Stanislav Voskresensky, deputy head
of the Ministry of Economic Development and Trade, was quoted
in the national media as suggesting that that new legislation
will define the term "beneficial ownership" in respect
of agreements for the avoidance of double taxation, and ensure
that treaty benefits are not extended to individuals or organizations
where the actual beneficiary is not a tax resident of the
country with which Russia has a double taxation agreement;
the individual or organization and the earnings received would
be subject to taxation in line with the Russian Tax Code rather
than the bilateral agreement.
This would also affect ultimate beneficiaries
in countries where no such treaty exists.
In October 2010, Russia and Cyprus signed a
protocol to their double taxation agreement which allows for
extensive exchange of tax information and removes Cyprus from
the notorious Russian 'blacklist' of jurisdictions which did
not demonstrate a sufficient level of cooperation with the
Russian tax authorities.
Russian President Dmitry Medvedev signed another
14 agreements to enhance economic relations with Cyprus on
the same day.
The Russian President advised that the new accord
made business more transparent and confirmed that Cyprus would
be removed from the Russian Central Bank's black list.
Cypriot President Demetris Christofias told
reporters at a joint news conference in Nicosia that economic
economic relations would be strengthened by ensuring that
financial and investment relations were untainted.
The protocol amending the 1998 tax treaty between
Russia and Cyprus includes special provisions related to real
Russian commentators believe that more than
half of current property investment projects in Russia involve
offshore companies based in Cyprus.
The most important change in the treaty relates
to source-state taxation of capital gains in companies which
predominantly hold real estate as their main activity: where
more than half the company’s assets comprise Russian
immovable property, Russia will be able to apply its domestic
capital gains tax. This conforms with articles contained in
the standard OECD model tax convention. Prior to this change,
capital gains taxing rights were applied in the country of
residence of the selling company.
In addition, real estate investment trusts and
funds will have their dividends treated as being income from
real estate for the purposes of the treaty.
Both Cyprus and Russia aim to ratify the protocol
without delay in order that it can take effect from January
1, 2011, but the amendments to the provisions on capital gains
tax will only come into effect four years after ratification
and the transition period will therefore extend at least until
The following countries are among those which
have double-tax treaties with Cyprus, although not all have
been ratified at the time of writing:
- CIS (ex-USSR)
- Czech Republic
- San Marino
- Serbia and Montenegro
- South Africa
- United Kingdom
- United States
The Russian treaty signed in December 1998
replaced the USSR (CIS) treaty as regards Russia but not as
regards the other member states of the CIS, who remained bound
by the old treaty. The differences are relatively minor.
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Cyprus Tax Sparing Provisions
A tax-sparing provision has the effect that
if tax is 'spared' ie exempted in Cyprus, then it is credited
against an investor's tax liability in his home country (the
treaty counterpart) as if it had actually been paid in Cyprus.
At the time of writing, there are tax-sparing provisions in
the treaties with the following countries:
The taxes all or partly spared are
- Tax on interest paid on loans for economic development
in Cyprus (Canada, Denmark, Germany, France, UK)
- Tax relieved because of deductions in respect
of investment in Cyprus (Canada, UK)
- Tax on interest or profits which is unpaid because
of tax incentives, reliefs or exemptions in Cyprus
(Czech Republic, Greece, Ireland, Romania, Slovakia,
- Tax not withheld on dividends (15%) if the exemption
is given for the purposes of economic development
in Cyprus (Denmark, Germany, France)
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Cyprus Other International Agreements
The Cyprus Securities and Exchange Commission
has signed a Multilateral Memorandum of Understanding with
the regulatory authorities of the European Community Member
States through the Committee of the European Securities Regulators.
Bilateral MoUs also exist between Cyprus and
the following national organisations:
- Australian Securities & Investments Commission
- Austrian Securities Authority
- Bundesanstalt für Finanzdienstleistungsaufsicht
- Bulgarian Financial Supervision Commission
- Comissão do Mercado de Valores Mobiliários-Portugal
- Czech Securities Commission
- Egypt Capital Market Authority
- Hellenic Republic Capital Market Commission
- Hungarian Financial Supervisory Authority
- Isle of Man Financial Supervision Commission
- Israel Securities Authority
- Jersey Financial Services Commission
- Malta Stock Exchange
- Polish Securities and Exchange Commission
- Romanian National Securities Commission
- Slovak Republic Financial Market Authority
- Dubai Financial Services Authority
- Federal Financial Markets Service of Russia
Promotion and Protection of Investments Agreements
Cyprus has signed over 20 Agreements on the
Promotion and Protection of Investments. These bilateral agreements
contain guarantees against discriminatory treatment, safeguards
for the repatriation of capital and profits in a freely convertible
currency and compensation provisions in the event that property
is expropriated, among other clauses. Countries with which
Cyprus has such agreements include:
- Czech Republic
- Moldova (signed but not yet in force)
- San Marino
- Serbia and Montenegro
In March 2009, Cypriot Minister of Commerce,
Industry and Tourism, Antonis Paschalides, signed an agreement
to protect and promote mutual investment with Iran.
During the Minister’s meetings in Tehran,
issues of common interest were discussed and ways of further
developing economic, trade, tourism and investment relations
between Cyprus and Iran were examined. In the framework of
the meeting with the Iranian Minister of Finance, an agreement
was signed for the Mutual Promotion and Protection of Investments
between Cyprus and Iran.
Convention on Money Laundering
On March 27, 2009, Cyprus ratified the Council
of Europe Convention on Money Laundering, Search, Seizure
and Confiscation of the Proceeds from Crime and on the Financing
of Terrorism (CETS No. 198).
The convention opened for signature to the member
states of the Council of Europe, the non-member states which
have participated in its elaboration, and the European Community,
in Warsaw, on May 16, 2005. It entered into force on May 1,
The latest convention replaces the Council of
Europe’s 1990 convention, providing legislation to take
into account the fact that not only could terrorism be financed
through money laundering from criminal activity, but also
through legitimate activities.
The new convention is the first international
treaty covering both the prevention and the control of money
laundering and the financing of terrorism. The text addresses
the fact that quick access to financial information or information
on assets held by criminal organisations, including terrorist
groups, is the key to combating them. The convention includes
a mechanism to ensure the proper implementation of its provisions
Following the completion of the work of the
Joint Cyprus - Libya Committee, an important Protocol of Cooperation
was signed between the two countries in June 2009, which aims
inter alia to enhance and further develop their bilateral
relations in the fields of economy, commerce and science.
The Protocol was signed in Nicosia by the Minister
of Finance Mr Charilaos Stavrakis who was head of the Cyprus
delegation at the talks and by the Minister of Justice of
Libya Abdel Jalil, who headed the Libyan delegation.
"Cyprus’s aim is to attract foreign
investment companies in Libya, which could make their investments
through Cyprus", the Cypriot Minister said in a statement
after the signing, underlining in particular Cyprus’s
tax regime as the lowest in Europe.
Stavrakis noted that following the meeting he
had agreed with Libya to visit within the coming months to
conclude an agreement for the avoidance of double taxation
to further boost trade and investments between Cyprus and
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