On the 31st of December 2021, Cyprus ratified its first-ever Double Tax Treaty ("DTT") with the Hashemite Kingdom of Jordan (the “Treaty”). The Treaty, signed on the 17th of December 2021, is based on both the OECD Model Tax Convention on Income and Capital and the United Nations Model Double Taxation Convention. It also incorporates the Base Erosion and Profit Shifting (BEPS) minimum standards, aimed at preventing tax avoidance.
The Treaty will come into effect in the year following the completion of Jordan’s ratification process.
Assuming this process is completed within the current year, the Treaty is expected to be effective as of the 1st of January 2023.
Key Provisions of the Treaty:
Dividends
A 5% withholding tax applies if the recipient/beneficial owner is a company (other than a partnership) that holds at least 10% of the paying company’s capital. A 10% withholding tax applies in all other cases.
Interest
A 0% withholding tax applies if the recipient/beneficial owner is:
The Government, a political subdivision, or a local authority
The National Bank
A 5% withholding tax applies in all other cases
Royalties and Technical Services
7% withholding tax applies to the recipient/beneficial owner of the royalties or fees for technical services
Capital Gains
Gains from the sale of shares in a company deriving more than 50% of its value directly from immovable property in the other Contracting State may be taxed in that other State, limited to the gains attributable to the immovable property. An exemption applies for the sale of shares listed on an approved stock exchange. Gains from the sale of shares in a company deriving its value, directly or indirectly, from exploration or exploitation rights, property related to the seabed, subsoil, or natural resources may be taxed in the other Contracting State.
Entitlement to Benefits
Benefits under the Treaty may be denied if it is reasonable to conclude, based on all relevant facts and circumstances, that one of the principal purposes of the arrangement or transaction was to obtain that benefit (Principal Purpose Test).
For more information and how this development may impact your business, feel free to contact us at info@pelaghiaslaw.com.
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