On Friday 11th of December 2015, Cyprus and Ukraine signed a double taxation avoidance protocol in Kiev. This protocol amends the current double tax avoidance convention that is in place since 1st of January 2014. The said protocol is expected to enter into force no earlier than 1st of January 2019, the date at which the current treaty will stop being valid .
According to the Cypriot minister of finance, “a most favorable nation clause has been agreed for the taxes on interest, dividends, royalties and capital gains, ensuring that Cyprus is treated no less favorably than any other of Ukraine’s double taxation agreement counterparties in the future”.
The new protocol is founded on the OECD model tax convention for the avoidance of double taxation on income and on capital. The terms of the protocol regarding taxes on dividends, interest and capital gains, are being described in short herebelow . The following terms derive from the website of the Ukrainian Ministry of Finance.
Dividends
The standard withholding tax rate to apply on dividends paid by Ukrainian companies to Cypriot shareholders is 15%, with the rate eliminated to 5% given that:
1) The beneficial owner owns more than 20% of the share capital of the company paying the dividend, and
2) The beneficial owner has invested more than €100,000 in the shares.
Interest
The withholding tax rate paid by a Ukrainian debtor to the beneficial owner is Cyprus is 5%.
Capital gains
Capital gains acquired from movable property – including shares in “property-rich” companies- are subject to taxation both in the country in which the immovable property is situated as well as in the country of residence of the person making the disposal.
Final remarks
Subject to ratification by both Cyprus and Ukraine, the new protocol provides a basis for the current DTA to continue until at least 1 January 2019, that is the earliest date on which the protocol may enter into force. While the protocol provides sort of eliminated benefits after that date compared with the current DTA the “most favoured nation” provision means that they will be at least as attractive as under any other of Ukraine’s DTAs.
