On Friday, the 11th of December 2015, the Finance Ministry of the Republic of Cyprus announced in a press release that whilst in Kiev, Cyprus and Ukraine, signed a protocol amending their bilateral double taxation avoidance convention.

In a later statement, the Ministry added that the signed protocol will come into force not earlier than January 1st of 2019, and it will be based on the model tax convention for the avoidance of double taxation of the Organization of Economic Cooperation and Development (OECD).

In accordance with the new protocol the withholding tax rate on dividends will be 5% provided the beneficial owner holds at least 20% of the capital of the dividend paying company and has invested over €100,000 in the company’s share capital. In all other cases the withholding tax rate will be 10%. The withholding tax rate on interest will be increased to 5%. Also, the profits from the sale of shares of property rich companies may be taxed in the country where the property is situated, subject to certain exceptions.

The original agreement, which was signed in November 2012 and entered into force in January 2014, was denounced by the country’s parliament, a month before the Ukraine’s pro-Russia government under Viktor Yanukovych was toppled.

The Ministry’s press release pointed out that this amended protocol will enhance further trade and economic relations between the two states and that a most favourable clause has been adopted, for taxes on interest, dividends, royalties and capital gains. This clause, they added, ‘is considered of high importance as Cyprus will be treated equitably with other competing jurisdictions.’

Finally, the Finance Ministry added that, ‘Upgrading and expanding the network of double tax conventions, is of high economic and political importance and aims to further strengthen the frame in Cyprus, as its standing as an international business center is elevated.