On 4 August 2015, the governments of Cyprus and Iran signed an
agreement for the avoidance of double taxation (the
Treaty). With the lifting of
international sanctions against Iran, Cyprus is now uniquely
positioned to act as a gateway for investments both into and from
The provisions of the Treaty apply:
- In the case of Iran, to income tax;
- In the case of Cyprus, to (i) income tax; (ii) corporate income tax; (iii) special contribution for defense tax; and (iv) capital gains tax.
The Treaty is based on the OECD model convention and incorporates exchange of information provisions in accordance with article 26 of the OECD model tax convention. In accordance with the provisions of the Treaty:
A withholding tax at source not exceeding 5 per cent of the
gross amount of the dividends will be applicable if the beneficial
owner is a company which holds directly at least 25 per cent of the
capital of the company paying the dividends or 10 per cent of the
gross amount in all other cases.
A withholding tax at source not exceeding 5 per cent of the gross amount of interest will be applicable.
A withholding tax at source not royalties not exceeding 6 per cent of the gross amount of royalties will be applicable.
Capital gains emanating from the disposal of immoveable property
are taxed in the country in which the immoveable property is
situated. Gains derived from the disposal of shares, deriving more
than 50 per cent of their value from immovable property shall be
taxed in the state where the property is situated.
The signing of the Treaty marks the 48th agreement concluded by Iran for the avoidance of double taxation to date.
The Cyprus Minister of Finance, Harris Georgiades commented: "Today we have signed a significantly important agreement, an agreement to avoid double taxation, which I am sure will open many opportunities, new co-operation paths, new outlooks for investment and trade relations between Cyprus and Iran."
Poised advantageously within the EU with access to the EU Directives and reaping treaty benefits with strategic partners, Cyprus can now be effectively used to extract dividends from within the EU and route them back to Iran at zero withholding tax rates.
The Treaty will enter into force on the 1st of January of the year following ratification by both countries and is expected to be effective 1 January 2016.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.