Protocol to Double Tax Treaty between Cyprus and Ukraine enters in to force

On 30 October 2019 the Parliament of Ukraine approved the ratification of the protocol amending the Double Tax Treaty (DTT) between Cyprus and Ukraine, which was signed in 2015. The revised treaty will be effective as from 1 January 2020.

The amending protocol keeps the reduced Withholding Tax (WHT) rate on dividends at 5% but instead of being conditional on either a 20% direct holding in the dividend-paying company or an investment by the recipient of shares (or securities with equivalent rights) of at least EUR100,000 in the dividend-paying company as it is currently the case, both conditions must apply for the exemption to be granted. Yet, for all other cases the WHT rate will be 10% on the gross amount of dividends, instead of 15% that applies based on the existing DTT.

For what concerns interest, the WHT rate as per the protocol is 5%, compared to 2%, which is provided by the current agreement.

With regards to capital gains on disposal of shares, the provision as per the latest OECD Model Treaty for gains on sale of property-rich companies is adopted in the protocol. Therefore any gains generated by a resident of a State from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State may be taxed in that other State (i.e. where the immovable property is situated). Any other disposal of shares is taxed in the State of the seller.  

Included in the text of the protocol is a “most favourable nation clause”. This clause is considered to be of great significance as in case Ukraine enters into a DTT with another country after 2 July 2015, which provides for a lower WHT rate on dividends, interest or royalties, or more favourable provisions relating to capital gains or otherwise than in the Cyprus – Ukraine DTT, then Cyprus has the right to renegotiate the relevant articles of the its treaty with Ukraine, for the purposes of applying the same or even more favourable provisions.


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