The Cyprus taxation scheme together with the simple bureaucratic procedures motivates business people and investors to launch their business activities in Cyprus. In addition, Cyprus maintains double tax treaties with more than 40 countries. Recently, the Minister of Finance of the Republic of Cyprus together with his Ukrainian counterpart launched a Protocol that will amend the current double tax treaty between the two countries, signed in 2012.

The particular Protocol signed between the two Financial Ministers will enter into force no earlier than the 1st of January 2019. In this point, it should be clarified that the Convention signed in November 2012 entered into force on the 1st of January 2014.

As a result of this Protocol, the economic and trade bonds between the two countries will be further developed. Furthermore, this development will lead to the emergence of new business and investment opportunities.

Main provisions of the agreement:

The agreement takes into consideration taxes on interests, dividends, royalties and capital gains. The Cyprus tax legislation together with this Protocol establishes Cyprus as one of the most optimal choices for Ukrainian business people and investors.

The main provisions of the Protocol are:

•TAXES ON INTERESTS

Following the existing Convention, the withholding tax on interest paid by a Ukrainian debtor to a beneficial owner who is based in Cyprus is 2%. Once the Protocol enters into force, this particular rate will be augmented to 5%.

•DIVIDENDS

The current double tax agreement offers for a withholding tax of 15% on dividends paid by Ukrainian companies to Cypriot shareholders, a reduced rate of 5% in case the beneficial owner owes more than 20% of the share capital of the company that pays the dividend or has invested more than €100,000 in shares. Based on this protocol, a lower tax rate will apply only if both conditions are satisfied.

•ROYALTIES

Following the provisions of the Treaty, the withholding tax rate is 5% for royalties related to scientific work, patent, trademark, the process of information regarding industrial, commercial or scientific experience. The withholding tax of 10% applies to other royalties.

•CAPITAL GAINS

The current Treaty implies that capital gains coming from movable property (including shares in property/ rich companies), whose assets embed mainly immovable property are taxable only in the country of residence of the individual who makes the disposal. Once the Protocol enters into force, profits on shares in property/ rich companies will be taxable in the country where the immovable property is located as well.

It should be stressed that the current Convention facilitates the elimination of double taxation by providing a tax credit method of tax relief.