Cyprus Tax Law Update – Double Tax Treaty between Kazakhstan and Cyprus

On 17 January 2020, Cyprus and Kazakhstan completed the exchange of notifications, confirming that the internal ratification procedures have been concluded. As a result, the Double Tax Treaty between Cyprus and Kazakhstan shall have effect on 1 January 2021. The main provisions of the new Double Tax Treaty are briefly summarised below:

Dividends:

The treaty provides for a maximum of 5% withholding tax on dividends provided that the beneficial owner is a company which holds directly at least 10% of the capital of the company paying the dividends. In all other cases, there is a maximum of 15% withholding tax on outbound dividend payments.

Interest:

The treaty provides for a maximum of:

• 10% withholding tax on interest payments provided that the beneficial owner of the interest is a resident of either of the contracting states and;
• 0% withholding tax on interest payments if the beneficial owner of the interest is the Government, or a political subdivision, a central or a local authority, the Central Bank or any financial institution wholly owned by the Government of either of the contracting states.

Royalties:

The treaty provides for a maximum of 10% withholding tax on royalty payments provided that the beneficial owner of the interest is a resident of either of the contracting states.

Capital Gains:

The treaty provides that gains derived by a resident of a contracting state from the alienation of shares or comparable interest in the capital of a company, except from alienation of shares listed on an approved stock exchange, deriving more than 50% of their value, either directly or indirectly, from immovable property situated in the other contracting state, may be tax in that other contracting state.

Other provisions:

Furthermore, a wide range of specific issues are addressed in the Double Tax Treaty, including 1) the taxation of offshore activities; 2) taxation of service permanent establishment; 3) provision on exchange of information and; 4) anti-treaty abuse provision to enhance the means tax authorities can use to disallow the benefits of the treaty in question if it is reasonable to conclude, having regard to all the relevant facts, that obtaining the benefit was one of the principal purposes of the transaction.

This Agreement verifies the Government’s efforts to strengthen trade and financial ties of the Republic of Cyprus with the Asian continent. We note that under Cyprus domestic legislation, no withholding tax is imposed on outbound dividend distribution, and interest and royalty (used out of Cyprus) payments to non-residents.

This update was prepared by associate Konstantinos Taramountas. For further information, please contact our firm’s Tax department.