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On August 2015, during the visit of the Iranian delegation to Cyprus; a double tax treaty agreement was signed between the two countries.

The tax treaty agreement is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital. The main provisions of the agreement are as follows:

Permanent Establishment: The permanent establishment describes a building site, a construction, assembly or installation project or supervisory activities in connection therewith, and is considered as a ‘permanent establishment’ only if it lasts more than 12 months.

Dividends:  The withholding tax may not exceed:

  • 5% of the gross amount of the dividends; if the beneficial owner is a company (other than a partnership), which holds at least 25% of the capital of the company paying the dividends;
  • 10% of the gross amount of the dividends in all other cases.

• Payments of interest from Iranian to Cypriot Beneficial Owner will be subject to 5% withholding tax;
• Interest payments resulting from Iranian or Cypriot government, governmental authority, central bank or other state-owned banking would be exempt from any withholding tax;
• However under Iranian law, interest payments to non-Iranian tax residents are subject to a withholding tax of 3% and therefore, the lower rate of 3% is expected to apply to interest payments from Iran to Cyprus.

Royalties: If the recipient of the royalties is the Beneficial Owner then the withholding tax shall not exceed 6% of the gross amount of royalties.

Capital gains: Capital gains derived by the disposal of immovable property are taxed in the country that the disposal took place.

The tax treaty will enter into force upon the completion of the ratification process in both countries.  These ratifications are expected to be finalised in the following few months.

The double tax treaty will enhance the commercial cooperation of the two countries and looks to boost their investment and trade relations.

Our tax experts can provide you detailed information and tax advice, regarding the above tax treaty, as well as theextensive network of double tax treaty agreements that have been signed by the Cyprus government. For further information please contact [email protected].