Double Tax Treaty Between Cyprus and the Netherlands: Details

09/06/2021

As recently reported, on 1 June 2021 Cyprus and the Netherlands signed a Double Tax Treaty (DTT). The DTT was published in the Official Gazette of the Republic of Cyprus on 4 June 2021.

The DTT provides for the following Withholding Tax (WHT) rates:

•        Dividends: Nil as long as the beneficial owner (BO) is:

•    a company holding directly at least 5% of the capital of the company paying the dividends, throughout a 365-day period that includes the day of the      dividend payment;
•    a recognised pension fund, which is exempt from any kind of income tax in the recipient state.

In all other cases, the treaty provides for a maximum 15% WHT.

•        Interest: Nil as long as the recipient of the interest is the BO of the income.

•        Royalties: Nil as long as the recipient of the interest is the BO of the income.

For what concerns Capital Gains, the contracting states maintain the exclusive right to tax gains on disposals of shares made by their tax residents, except in the following cases:

•     Disposal of non-listed shares or comparable interests which derive more than 50% of their value directly or indirectly from immovable property situated        in the other contracting state.

•     Disposal of shares deriving more than 50% of their value directly or indirectly from:

·      rights to assets produced by exploration or exploitation of the natural resources located in the other contracting state, including the exploration or   exploitation of the seabed or its subsoil and rights relating to the production of energy from water, sun and wind;

·     technical equipment or other similar property situated in the other contacting state and directly used in offshore activities.

The treaty includes a clause on Exchange of Information, based on OECD guidelines, as well as a Limitation of Benefits clause providing that the Tax Authorities of the contracting states are entitled to deny the application of treaty benefits if the obtainment of such benefit was one of the principal purposes of the relevant arrangement/transaction, unless the granting of such benefit would be in accordance with the object and purpose of the treaty.

The DTT will enter into force once the ratification procedures in both countries are completed. It will have effect in both contracting states on or after 1 January following the date the DTT enters into force.