As previously reported, Cyprus and Egypt signed, on 8 October 2019, a new Double Tax Treaty (DTT) aiming to replace the existing treaty, which is in force since March 1995.
Based on the DTT, the following Withholding Tax (WHT) rates apply:
· Dividends: 5% WHT if the beneficial owner (BO) is a company holding at least 20% of the capital of the company paying the dividends throughout a period of 365 days, that includes the day of payment of the dividend and 10% in all other cases.
· Interest: 10% WHT, provided that the recipient is the BO of such interest.
· Royalties: 10% WHT, provided that the recipient is the BO of such 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 for any WHT, irrespective of their destination and on whether they are physical or legal persons.
According to the capital gains provisions of the treaty, the country of residence of the seller has the exclusive right to tax gains arising from the disposals of shares, except in the following cases:
• disposal of shares or comparable interests which derive, at any time during the 365 days preceding the disposal, more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State; or
• disposal of shares, comparable interests, securities or other rights representing the capital of a company resident of the other Contracting State if the seller, at any time during the 365 days preceding such disposal, held directly or indirectly at least 20% of that company.
Gains on disposal of shares listed in a recognised stock exchange are exempt from the above provisions.
The treaty also provides guidance for the avoidance of double taxation with regards to cross border offshore activities (e.g. exploration and exploitation of natural resources).
The DTT will enter into force once the Contracting States complete their formal ratification procedures. The provisions of the treaty with respect to taxes will have become effective as from 1 January of the year following the year in which the treaty enters into force.