The Tax treaty signed between Cyprus and Ukraine on 8 November 2012 for the avoidance of double taxation and the prevention of fiscal evasion is due to enter into force on the 1st of January 2014 following its ratification by the Ukrainian Parliament which took place on the 4th of July 2013. The new Treaty is to replace the existing Tax Treaty which was signed between Cyprus and the USSR in 1982.
The most important provisions of the new treaty are the following:
Withholding tax on interest
2% withholding tax will be applied to interest paid by a Company which is resident in a contracting state to a resident of the other contracting state.
Withholding tax on dividends
The withholding tax rate on dividends is set at 5%. This rate applies in case the beneficial owner of the shares holds a minimum of 20% of the capital of the dividend paying company or has invested in shares or other rights of the dividend paying company a total of at least €100,000.
In all other cases the withholding tax rate on dividends is set at 15%.
Withholding tax on royalties
The withholding tax rate is set at 5% on royalties in respect of any copyright of scientific work, any patent, process or information concerning industrial, trademark, secret formula, scientific or commercial experience.
In all other cases the withholding tax on royalties is set at 10%.
Capital gains tax
In the case of shares disposal (irrespective of the underlying assets of the company in which the shares are being disposed of) any capital gains tax arising are granted to the State in which the person making disposal of the shares is tax resident.
Eliminating Double Taxation
Availability of tax credit is provided by the Treaty, where a resident of a contracting state receives income in accordance with the provisions of this Treaty, which was taxed in the other contracting state. Any taxation paid abroad shall be allowed as a deduction from the tax payable in the other contracting state for the same source of income.
The new Treaty is to adopt the latest version of Article 26 OECD on the exchange of information thus shall clearly stipulate willingness of the parties to follow internationally accepted tax standards and transparency.
New Treaty allows Cyprus to remain one of the most beneficial jurisdictions for investments to Ukraine as rates and tax schemes are considered to be attractive. New Treaty removes the reservations and doubts which surrounded old treaty thus simplifies and enhances new business relationships between Cyprus and Ukraine.