The Double Taxation Avoidance Agreement between the Republic of Cyprus and the Grand Duchy of Luxembourg was signed on Monday, the 8th of May 2017 in Nicosia and is awaiting ratification.
Assuming the ratification process is completed before the end of 2017, the treaty is expected to enter into force and come into effect as from the 1st of January 2018.
The new treaty is generally based on the OECD Model Tax Convention framework with some modifications.
The treaty applies to taxes on income as well as on gains from alienation of movable or immovable property. In the case of Luxembourg, the treaty covers the income tax, the corporation tax, the capital tax and the communal trade tax, whereas in the case of Cyprus, it covers corporate and personal income tax, defense tax and capital gains tax.
The treaty provides for withholding taxes only on dividends at the following rates:
• 0% in case where there is at least 10% participation by a tax resident company
• 5% in all other cases
There is no withholding tax on interest. There is no withholding tax on royalties, as long as the recipient of the royalties is the beneficial owner of the income.
Gains from the sale of shares of immovable property rich companies are taxed in the country where the immovable property is located.
The double taxation treaty was signed with the aim to strengthen and further develop economic and commercial ties between Cyprus and Luxembourg.