Double Tax Treaty between Cyprus and Kazakhstan enters into force

On 17 January 2020, the Cyprus-Kazakhstan Income Tax treaty (2019) (hereafter ‘the Treaty’) has entered into force. The Treaty generally applies from 1 January 2021 for withholding taxes and other taxes.

The maximum rates of withholding tax included in the Treaty are as follows;

  • 15% on dividends in general, but 5% where the recipient is a company (other than a partnership) that directly holds at least 10% of the capital of the paying company;  
  • 10% on interest (for certain interest payments to a Government the Treaty provides for a 0% rate), and;
  • 10% on royalties. Royalty payments are in consideration for: the use of, or the right to use, any copyright of literary, artistic or scientific work, software, including cinematograph films, tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information (know how) concerning industrial, commercial or scientific experience and payments for the use of, or the right to use, industrial commercial or scientific equipment. They do not include payments for the use of, or the right to use, ships or aircrafts. 

In principle, according to the Treaty capital gains derived from the sale of shares by residents of one contracting State in companies resident in the other contracting State may be taxed in the former State only, but an exception applies for;

  • the sale of non-listed shares in companies resident in the other State deriving more than 50% of their value from immovable property situated in that State, and;
  • the sale of shares, which derive the greater part of their value from certain offshore rights and/or movable property relating to exploration or exploitation of the seabed or subsoil or their natural resources located in the other State.

The Treaty also contains a so-called ‘’Principal Purpose Test’’, which provides that a Treaty benefit shall not be granted, under conditions, if obtaining that benefit was one of the principal purposes of an arrangement or transaction.