Cyprus - Double Tax Treaties
Cyprus has concluded 34
double tax treaties which apply to 40 countries. The main purpose of these
treaties is the avoidance of double taxation on income earned in any of
these countries. Under these agreements, a credit is usually allowed against
the tax levied by the country in which the taxpayer resides for taxes levied
in the other treaty country and as a result the tax payer pays no more than
the higher of the two rates.
Further, some treaties provide for tax sparing credits whereby the tax
credit allowed is not only with respect to tax actually paid in the other
treaty country but also from tax which would have been otherwise payable had
it not been for incentive measures in that other country which result in
exemption or reduction of tax.
To give a simplified example:
A company is taxable in both treaty countries, say 40% at country A and 20%
at country B. If the 20% tax at country B is paid, then a tax credit of 20%
would be given in country A. The result is 20% tax in country A and 20% in
country B. If now, in country B the normal tax of 20% is reduced to 5% (for
incentive purposes), if a tax sparing credit is provided in the respective
treaty, the tax to be deducted in country A would still be 20%, as if full
tax of 20% was actually paid in country B. The result would be 5% tax in
country B and, in spite of that, a tax of only 20% in country A (the
remaining 15% being the tax sparing credit).
All Cyprus resident companies qualify for Double Tax Treaty protection.
List of Double Tax Treaties with treaty rates for payments of dividends,
interest and royalties.
