New double tax treaty between Cyprus and the Netherlands
On 1 June 2021, the first ever Convention for the elimination of double taxation with respect to taxes on income between Cyprus and the Netherlands (hereafter the Treaty) was signed in Nicosia, by Cyprus’ Minister of Finance, Constantinos Petrides and the ambassador of the Netherlands in Cyprus, Mrs Elke Merks-Schaapveld.
The main features of the Treaty are as follows.
Dividends paid by a company which is a resident of one Contracting State to a resident of the other Contracting State are exempt from tax in the former state, provided that they are beneficially owned by;
- a company resident in the other State that holds directly at least 5% of the company paying the dividends throughout a 365 days period that includes the day of payment of the dividend, or;
- a recognised pension fund of the other State, which is generally exempt under the company tax or corporate income tax laws of that other State.
Notwithstanding the above, the Netherlands shall not be prevented from applying its domestic tax law with respect to an interest in a tax-exempt investment institution (‘’vrijgestelde beleggingsinstelling’’), but tax charged by the source State on dividends paid to the other Contracting State may never exceed 15% (with an exception only applying to Dutch emigrants owning a so-called substantial interest (‘’aanmerkelijk belang’’) in a company).
Income received in connection with the liquidation of a company or a purchase of own shares by a company is treated as income from shares and not as capital gains under the Treaty.
Interest arising in one contracting State and beneficially owned by a resident of the other State may be taxed in the latter State only.
Royalties arising in one contracting State and beneficially owned by a resident of the other State may be taxed in the latter State only.
Gains derived by a resident of one State from the alienation of immovable property situated in the other State may be taxed in the State in which the property is situated.
Gains from the alienation of unlisted shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State, may (with a few exceptions) also be taxed in the latter State.
Pensions (including those under the provisions of a social security system of a State) derived by a resident of a contracting State shall be taxable only in the latter State. However, they may also be taxed in the State in which they arise if their gross annual amount exceeds € 15,000.
Article 26 of the Treaty stipulates that a benefit under the Treaty shall not be granted to income if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the Treaty.
Entry into force
The Treaty enters into force on the last day of the month following the month in which the later of the notifications has been received in which the respective Contracting States have notified each other that the formalities constitutionally required in their respective States have been complied with.