Cyprus has concluded a Double Tax Treaty (DTT) with Iran on 4 August 2015 for the avoidance of double taxation. This tax treaty was signed in the presence of the Iranian Deputy Minister of Finance Ali Asghar and shall come into force once each country completes the ratification process. The tax treaty is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital and its main provisions are briefly outlined below:
Permanent Establishment:
The permanent establishment definition included in the treaty is in line with the definition provided in the OECD Model Tax Convention. In particular, a building site, a construction, assembly or installation project or supervisory activities in connection therewith, constitutes a ‘permanent establishment’ only if it lasts more than 12 months.
Withholding tax rate on dividends payments
• maximum 5% withholding tax on dividends paid, if the beneficial owner of the dividends is a company (other than a partnership) holding directly at least 25% of the capital of the company paying the dividend;
• maximum 10% withholding tax on dividends paid , in all other cases;
Withholding tax rate on interest payments
• The withholding tax shall not exceed 5% of the gross amount of interest, if the recipient is the beneficial owner of the interest.
Withholding tax rate on royalties payments
• The withholding tax shall not exceed 6% of the gross amount of royalties, if the recipient is the beneficial owner of the royalties.
Capital Gains Tax
• Gains from the disposal of immovable property may be taxed in the country where the immovable property is situated.
Final remarks
The treaty is expected to strengthen and develop the economic relations between the two countries.
It is important to note that irrespective of the country of residence of the recipient or whether a relevant tax treaty exists, there is no WHT on outgoing payments from Cyprus in the form of dividends, provided the payments are made to non Cyprus tax resident shareholders (companies or individuals) or to Cyprus tax resident individuals who are not Cyprus Domiciled. Also, irrespective of the country of residence of the recipient or whether a relevant tax treaty exists, there is no WHT on interest paid from Cyprus as well as on royalties paid from Cyprus in respect of intellectual property exploited outside Cyprus to any company or individual.
