Cyprus and Croatia Sign a Double Tax Treaty

On 17 October 2023 Cyprus and Croatia signed a Double Tax Treaty (DTT). The treaty was published in the Official Gazette of the Republic of Cyprus on 27 October 2023.

The DTT is based on the OECD Model Tax Convention and includes all the minimum standards of the OECD Base Erosion and Profit Shifting (BEPS) project related to bilateral agreements concerning exchange of information, mutual agreement procedure and principal purpose test.

The main provisions of the treaty are presented below.


Withholding Tax Rates

The DTT provides for the following Withholding Tax (WHT) rates:

Dividends: 5% if the recipient is the beneficial owner of the dividend income.

Interest: 0% if the recipient is the beneficial owner of the interest income and if such interest is paid:

•           in connection with the sale on credit of any industrial, commercial or scientific equipment

•           in connection with the sale on credit of any merchandise by one enterprise to another enterprise

•           on any loan of whatever kind granted by a bank

In all other cases, the treaty provides for a 5% WHT.

Royalties: 5%  if the recipient is the beneficial owner of the royalties.


It is reminded that payments of dividends, interest and royalties (the latter when earned outside the country) from Cyprus to non-resident persons are fee from any WHT, irrespective of their destination (as long as they are not paid to EU blacklisted jurisdictions – please refer to our relevant newsfeed) and on whether they are physical or legal persons.


Capital Gains

Gains derived by a resident of one of the two countries from the alienation of shares (or comparable interests, such as interests in a partnership or Trust) which, at any time during the 365 days prior to the alienation, derived more than 50% of their value directly or indirectly from immovable property situated in the other country, may be taxed in that other country.

This provision does not apply to gains from the alienation of shares:

•           listed on an approved stock exchange

•           in the course of a corporate reorganization

•           when the alienator is a recognized pension fund


Principal Purpose Test

The application of the DTT on an arrangement or transactions may be denied in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining such benefits was one of the principal purposes of the relevant arrangement or transaction.


The treaty will enter into force after the necessary ratification procedures are completed. Once it enters into force, the treaty will have effect in both contracting states on or after 1 January following the date the treaty enters into force. Once ratified, it will effectively replace the DTT between Cyprus and the Socialist Federal Republic of Yugoslavia, which continued to be in force after the latter’s dissolution.

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