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NEW DOUBLE TAX TREATY BETWEEN CYPRUS AND UKRAINE
Following the ratification of the new treaty by the Government of Cyprus on the 22nd of March 2013, the Ukrainian parliament has proceeded with the ratification the new double tax treaty between Cyprus and Ukraine on the 4th of July 2013.
The new treaty was put into effect as from the 19th of August 2013.
Based on the provisions of the treaty, it will have effect as from 1st of January 2014 and will replace the old treaty between Cyprus and USSR.
The main provisions of the new Treaty are listed below:
Dividends paid by a company which is resident in a contracting state to a resident of the other contracting state will be subject to 5% withholding tax provided that the owner holds at least 20% of the shares of the company paying the dividends or has invested at least EUR 100.000,00 as capital in the company.
In all other cases the withholding tax rate is 15%.
Interest paid by a Company which is resident in a contracting state to a resident of the other contracting state will be subject to 2% withholding tax.
Royalties arising in a contracting state and paid to a resident of the other contracting state will be subject to 5% withholding tax, provided royalties are paid in respect of any copyright of scientific work, any patent, trade mark, secret formula, process or information concerning industrial, commercial or scientific experience.
In all other cases the withholding tax rate is 10%.
- Sale of Property
Under the new Treaty any profit from the sale of shares of companies that own immovable property is taxed at the contracting state of the seller.
For example if a Cyprus holding company holds the shares of a Ukrainian company which holds a significant number of immovable properties in Ukraine, in the event the Cyprus company decides to sell the shares of the Ukrainian company to a prospective investor the profit derived from the sale of the shares of the Ukrainian subsidiary will only be taxed in Cyprus. Under, Cyprus tax legislation, profit from sale of shares is exempt from any taxation.