Background

On 1st June 2021, the Republic of Cyprus and the Netherlands signed, for the first time ever for the two countries, a Double Taxation Treaty (DTT). This DTT relates to tax on income earned in Cyprus and/or in the Netherlands, and the prevention of tax evasion and avoidance.  

The Treaty will become effective, the year following the year in which the ratification process in both countries is completed.  

The Treaty Covers the Following Withholding Taxes

1. Dividends

There is no withholding tax (WHT) on dividends, if the dividends are beneficially owned by:

  • a recipient that holds at least 5% of the capital of the company paying the dividends for at least one year, OR
  • a recipient that has a recognised pension fund.  

The WHT in all other cases shall not exceed 15% of the gross amount of dividends.

2. Interest

There is no withholding tax on payments of interest, provided that the recipient is the beneficial owner of the income.

3. Royalties

There is no withholding tax on payments of royalties, provided that the recipient is the beneficial owner of the income.

4. Capital Gains

Capital gains arising from the disposal of shares are taxed exclusively in the country of residence .

The exception to this is capital gains arising from the disposal of shares or comparable interests, deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State. Such capital gains may be taxed in that other State. Certain exemptions apply.

The Principal Purpose Test (PPT)

BEPS (Base Erosion and Profit Shifting (BEPS) Package), introduced the principal purpose test (PPT), as one of the Minimum Standards to be implemented by the countries participating in the BEPS Inclusive Framework. BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.

The PPT aims to deny tax treaty benefits in the case of treaty abuse.

Each case or situation, will be submitted to the PPT and the authorities will decide whether the benefits arising from the DTT can be granted or not.

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.