Tax Alert – Protocol to the Cyprus-Ukraine Double Tax Treaty
During December 2015 Cyprus and Ukraine signed a Protocol to amend the Double Tax Treaty that came into force on 1 January 2014. The changes effected by the Protocol are the following:
• Dividends – The Protocol provides for a reduced 5% withholding tax on dividends if the beneficial owner holds at least 20% of the company paying the dividend AND has invested more than EUR 100.000 in the capital of that company. In case these conditions are not met, the withholding tax to be imposed is 10%.
• Interest – The withholding tax on interest is increase from 2% to 5%.
• Property rich clause – Gains from sale of shares of property rich companies (at least 50% of their value derives from immovable property) are taxable in the country where the immovable property is situated. This clause is not applicable for a number of cases (ie listed companies, public companies etc).
What is important to be noted is that Cyprus has managed to secure that if Ukraine after 2 July 2015 enters into a Double Tax Treaty with any country with more beneficial provisions in relation to dividends, interest, royalties and capital gains compared to the Cyprus/Ukraine Double Tax Treaty then the latter will be amended to reflect these beneficial changes.
The Protocol is expected to come into force as from 1 January 2019 onwards.