CYPRUS UKRAINE DOUBLE TAX TREATY
On 4 July 2013 the Ukrainian parliament approved the bill for ratification of the double tax treaty between Cyprus and Ukraine which was signed 8 November 2012 and which replaced the 1982 agreement between Cyprus and Soviet Union. This followed the initial failed attempt 18 June 2013 of the Ukrainian government to secure the majority of the parliamentary votes needed for the ratification. The law will enter into force when it is signed by the Ukrainian president and published in the Ukrainian government official journal. Provided that the notifications of the completion of all the required ratification procedures are exchanged between the two countries within 2013, then the new treaty will be applicable from 1 January 2014.
The new Cyprus Ukraine double tax treaty maintains almost all of the beneficial features of the previous treaty which set Cyprus as the preferred jurisdiction for investments into Ukraine, accounting for more than 25% of these, and at the same time puts an end to the long-standing uncertainty that existed due to the several years of negotiations between the two governments and the international pressure toward Ukraine to eliminate the, what was described as, “preferential” tax treaty with Cyprus.
The provisions of the new double tax treaty which safeguards Cyprus’ dominant position as the primary investment route into Ukraine are briefly set below:
Dividends, Interest and Royalties
Article 10: Withholding tax on dividend payments
Dividends paid are subject to a 5% withholding tax provided that the owner holds at least 20% of the capital of the company paying the dividend or has invested an amount of at least EUR100.000.
In all other cases a withholding tax of 15% applies.
Article 11: Withholding tax on interest payments
Interest paid is subject to a 2% withholding tax.
Article 12: Withholding tax on royalty payments
Royalties paid on income from copyright of scientific work, any patent, trade mark, secret formula, process or information concerning industrial, commercial or scientific experience is subject to a 5% withholding tax. All other cases are subject to a 10% withholding tax.
Article 13: Capital gains tax
Even though as per Article 6 of the double tax treaty any income generated from immovable property located in either Cyprus or Ukraine may be subject to tax at the state where the immovable property is stated, Article 13 states that capital gains from a sale of shares (including capital gains on disposal of shares in immoveable property rich companies) is taxed in the country of residence of the seller. Since gains on sale of titles are exempt from Cyprus tax then there is no tax on the profits on sale of shares of Ukrainian companies holding immovable property.
Exchange of information
Article 24: Exchange of information
The provisions for the exchange of information use the exact wording of article 26 of the O.E.C.D. model and moreover the double tax treaty states all the necessary steps relating to the request for information in order to demonstrate the foreseeable relevance of the requested information. These steps will provide to the taxpayers maximum protection against misuse of the clause.
The information to be supplied includes;
i. the identity of the person under examination;
ii. a description of the information requested including the form and manner in which the requesting state wishes to receive the information;
iii. the tax purpose for which the information is sought;
iv. the grounds for believing that the requested information is held by the contracting state to which
v. the request is addressed, or is in the possession or under the control of a person within its jurisdiction;
vi. the name and address of any person who may hold the information requested, if known;
vii. A written statement that the provision of such information is in compliance with the legislation and the administrative practices of the requesting state and that if the requested information was within the state in question, the competent authority may procure the information in accordance with its own laws and its ordinary administrative practices; and
viii. a written statement that the contracting state making the request has exhausted all other reasonable means of obtaining the requested information.
In Cyprus under the Assessment and Collection of Taxes Law the written approval of the Attorney General authorising ultimate disclosure is needed, and this will only provided only on a case by case basis. The Attorney General has not, to date, granted such authorisation in any case.
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