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THE SIGNIFICANCE OF MAINTAINING A STRONG DTT NETWORK FOR CYPRUS

One of the most recent double tax treaties (DTT), the one between Cyprus and Lithuania is a good example for revealing the breadth of benefits such a treaty might bring for Cyprus as well as opportunities that arisewith new markets, especially in light of recent developments in the traditional jurisdictions with which Cyprus has been involved.

While the investment opportunities that follow a strong DTT network may be clear among tax practitioners in Cyprus, a wholesome understanding of the benefits of DTT is imperative amongst all services professionals. Taking as an example the recent DTT between Cyprus and Lithuania, which has strong trade relations with Russia, it is expected the treaty will create new investment opportunities to and from Lithuania via the use of Cyprus entities. Further, the fact that Lithuania is expected to enter the Eurozone in 2015 is of great importance in regards to itsoperations with EU countries. Notably, the favourable provisions of the treaty, which allow gains to be effectively covered from tax, will be very attractive to real estate investors in Lithuania, encouraging them to choose Cypriot structures for investments in Lithuanian real estate.

Following this example it is clear that there are a lot of benefits an agreement with emerging markets may bring, as such markets play a key role to the existence and growth of big international financial centres. Cyprus should take advantage and focus on these markets with great potential, such as Zambia, Nigeria, Brazil, Chile, Indonesia and Malaysia.

S&AFurtherdouble tax treaties are important means for the encouragement of foreign investments flowing in a country. They offer investors guidelines as to where and how their investments will be taxed, and provide security between residents of bothstates. They also provide an assurance to both foreign governments and the investors that the contracted countries adhere to the internationally accepted tax rules.

New double tax agreements play a major role for the success and survival of any international business centre, allowing access to further markets beyond the concluded country, e.g. the Cyprus-Spain double tax treaty gives access to Cyprus also to the Latin American market.

One of the best ways for Cyprus to benefit from a strong DTT network is to combine these bilateral agreements with new investment products. A prime example are the protected cell companies which have been thriving in competing international financial centres and  have been under consideration by the relevant legislative bodies in Cyprus for much the same time.