Double Tax Treaty between Cyprus and Saudi Arabia – Details

08/01/2018

As reported last week, a Double Tax Treaty (DTT) was signed on 3 January 2018 between Cyprus and Saudi Arabia. The particulars of the DTT have become available in the meantime, the most important points of which are presented below in summary. 

Application

The treaty applies to taxes on income as well as on gains from alienation of movable or immovable property.

In the case of Cyprus, the treaty covers corporate and personal income tax, special contribution for defence and capital gains tax, whereas in the case of Saudi Arabia, the treaty covers the Zakat and the income tax.

Withholding Tax

Dividends

The DTT provides for withholding tax on dividends at the following rates:

• Nil in cases where there is at least 25% participation by a company that is tax resident in the receiving jurisdiction.
• 5% in all other cases.

Interest

No withholding tax is charged on interest, as long as the recipient is the beneficial owner of the income.

Royalties

As long as the recipient is the beneficial owner of the income the treaty provides for the following rates of withholding tax:

• 5% in cases where the royalties are paid for the use of, or the right to use, industrial, commercial or scientific equipment
  
• 8% in all other cases

The treaty provides that gains arising from the disposal of shares of a substantial participation in the capital of a company which is resident of a Contracting State may be taxed in that Contracting State.

A person is considered to have a substantial participation when this is at least 25% of the capital of the target company, at any time within twelve months prior to the disposal of the shares.

Effect

The DTT will come in to force on 1 January 2019 assuming the ratification procedures by the two countries are completed within 2018.