A double taxation avoidance protocol between Cyprus and Ukraine has been signed in Kiev on Friday 11th of December 2015, amending the existing double tax avoidance convention that is in place since 1st of January 2014. The protocol is expected to enter into force no earlier than 1st of January 2019, the date at which the existing treaty will expire.
According to the Cypriot minister of finance, Mr. Haris Georgiades, “a most favorable nation clause has been agreed for the taxes on interest, dividends, royalties and capital gains, ensuring that Cyprus is treated no less favorably than any other of Ukraine’s double taxation agreement counterparties in the future”.
The signed protocol is based on the OECD Model Tax Convention for the avoidance of Double Taxation on income and on Capital. Below we briefly describe the protocol terms in relation with the taxes on dividends, interest and capital gains, as these are extracted from the website of the Ukrainian Ministry of Finance.
Dividends
The standard withholding tax rate to apply on dividends paid by Ukrainian companies to Cypriot shareholders is 15%, with the rate reduced to 5% provided that:
- The beneficial owner owns more than 20% of the share capital of the company paying the dividend, and
- The beneficial owner has invested more than €100,000 in the shares.
Interest
The withholding tax rate paid by a Ukrainian debtor to the beneficial owner is Cyprus is 5%.
Capital Gains
Capital gains derived from movable property – including shares in “property-rich” companies- are taxable both in the country in which the immovable property is located as well as in the country of residence of the person making the disposal.