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NEW DOUBLE TAX TREATY BETWEEN CYPRUS AND SPAIN SOON TO ENTER INTO FORCE

Following the ratification of the double tax treaty (“DTT”) between Cyprus and Spain on March 22nd, the new treaty will come into force three months after the exchange of official notifications and upon completion of the official exchange of the ratified documents between the governments of Spain and Cyprus.

Accordingly, the new agreement is expected to enter into force by this coming June.

The Cyprus tax authorities have indicated the benefits of the new DTT to be applied retrospectively with effect from January 1st, 2014.

Main provisions of the new treaty include the following:

  • Dividend payments will be subject to a 5% withholding tax;
  • Interest payments and royalty payments will not be subject to withholding tax;
  • Capital Gains from the direct sale of shares in “property-rich” companies will be taxed in the country where the immovable property is situated.

A Limitation of Benefits (LOB) provision was not included in the treaty; however, the Protocol clearly specifies that domestic anti-abuse provisions will apply.

With the new treaty in place, which complies with the international standards on exchange of information, Cyprus will also be removed from the Spanish “black list” of uncooperative jurisdictions.

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