On May 24, 2016 the Government of the Republic of Cyprus and the Government of the Republic of Latvia concluded a Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Hereafter: the DTA). Since then the text of the DTA has been published in the Cyprus Government Gazette.
Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
Taxes covered
Based on Article 2, Paragraph 3 of the DTA (“TAXES COVERED”), The existing taxes to which the Convention shall apply are in particular:
a) in Cyprus:
(i) the income tax;
(ii) the corporate income tax;
(iii) special contribution for the Defence of the Republic;
(iv) the capital gains tax;
b) in Latvia:
(i) the enterprise income tax;
(ii) the personal income tax.
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the DTA in addition to, or in place of, the existing taxes.
Resident
Article 4, Paragraph 3 of the DTA (“RESIDENT”) arranges that where by reason of the provisions of Article 4, Paragraph 1 of the DTA a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour in order to settle the question by mutual agreement and determine the mode of application of the Convention to such person.
Permanent establishment
Article 5, Paragraph 3 of the DTA (“PERMANENT ESTABLISHMENT”) arranges that a building site, a construction, assembly or installation project or a supervisory or consultancy activity connected therewith constitutes a permanent establishment only if such site, project or activity lasts for a period of more than nine months.
Immovable property
Article 6, Paragraph 1 of the DTA (“INCOME FROM IMMOVABLE PROPERTY”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 13, Paragraph 1 of the DTA (“ALIENATION OF PROPERTY”) arranges that income or gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 2 of the DTA subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares orcomparable interests of any kind in a company or other entity deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.
Associated enterprises
Article 9, Paragraph 2 of the DTA (“ASSOCIATED ENTERPRISES”) contains a so-called appropriate adjustment clause.
Dividends
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the DTA (“DIVIDENDS”) maximizes the dividend withholding tax a Source State is allowed to withhold to:
a) 0 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership);
b) 10 per cent of the gross amount of the dividends in all other cases.
Interest
If the beneficial owner of the interest is a resident of the other Contracting State, Article 11, Paragraph 2 of the DTA (“INTEREST”) maximizes the withholding tax a Source State is allowed to withhold over such interest to:
a) 0 per cent of the gross amount of the interest, if the interest is paid by a company that is a resident of a Contracting State to a company (other than a partnership) that is a resident of the other Contracting State and is the beneficial owner of the interest;
b) 10 per cent of the gross amount of the interest in all other cases.
Royalties
If the beneficial owner of the royalties is a resident of the other Contracting State, Article 12, Paragraph 2 of the DTA (“ROYALTIES”) maximizes the withholding tax a Source State is allowed to withhold over such royalties to:
a) 0 per cent of the gross amount of the royalties, if theroyaltiesarepaid byacompany that is a resident of a ContractingState toacompany(other thanapartnership) that is a resident of the other Contracting State and is the beneficial owner of the royalties;
b) 5 per cent of the gross amount of the royalties in all other cases.
Other
Furthermore the DTA contains a.o. provisions regarding Offshore Activities (Article 21), a Mutual Agreement Procedure (Article 25) and regarding the Exchange of Information (Article 26).
Click here to be forwarded to the text of the DTA as available on the website of the Cyprus Government Gazette.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
Copyright – internationaltaxplaza.info
and
Stay informed: Subscribe to International Tax Plaza’s Newsletter! It’s completely FREE OF CHARGE!