The Double Tax Treaty signed between Cyprus and Ukraine on November 2012 for the avoidance of double taxation and the prevention of fiscal evasion enters into force as from 1 January 2014 following its ratification by the Ukrainian Parliament on 4 July 2013. The new Treaty replaces the existing Tax Treaty signed between Cyprus and USSR in 1982.
THE MOST SIGNIFICANT PROVISIONS OF THE NEW TREATY ARE AS FOLLOWS:
Withholding Tax on Interest
Interest paid by a Company which is resident in a contracting state to a resident of the other contracting state will be subject to 2% withholding tax.
Withholding Tax on Dividends
The withholding tax rate on dividends is set at 5%. This rate applies provided that the beneficial owner of the shares holds at least 20% of the capital of the dividend paying company or has invested in shares or other rights of the dividend paying company an amount of at least €100,000. In any case the withholding tax rate on dividends is set at 15%.
Withholding tax on Royalties
The withholding tax rate on royalties in respect of any copyright of scientific work, any patent, trademark, secret formula, process or information concerning industrial commercial or scientific is set at 5%. In any other case the withholding tax on royalties is set at 10%.
Capital Gains Tax
In the case of disposal of shares (irrespective of the underlying assets of the company in which the shares are being disposed of) any capital gains arising is granted to the State in which the person making the disposal is tax resident.
Elimination of Double Taxation
The Treaty also provides for the availability of tax credit, where a resident of a contracting state receives income in accordance with the provisions of this Treaty, which was taxed in the other contracting state. Any taxation paid abroad shall be allowed as a deduction from the tax payable in the other contracting state for the same source of income.
Exchange of information
The new Treaty adopts the latest version of Article 26 OECD on the exchange of information thus stipulating clearly the parties’ willingness to follow internationally accepted tax standards and transparency.
The new treaty allows Cyprus to remain one of the most beneficial jurisdictions for investments into Ukraine and all over Europe with the use of the most appropriate tax schemes. The new treaty provides a combination of attractive tax rates (the Cyprus tax system offers one of the lowest tax rates of 12.5%), and not tax on any income gained from the sale of securities, no tax on any dividend income earned, reduced tax rates on any income arising from royalties, and no tax is charged in Cyprus for any income relating to the sale of any immovable property which is situated outside the Republic. It is also worth noting that the new Treaty removes the uncertainty and the doubts that existed by the applicability of the old treaty with the USSR and it therefore simplifies and enhances new business relationships between the two countries.