An Agreement between the Republic of Cyprus and Slovenia for the Avoidance of Double Taxation was signed on 12 October 2010.

On the date the new Agreement is been ratified by both countries, the provisions of the existing treaty dated 1985 between the Government of the Republic of Cyprus and Slovenia will expire.

Withholding Tax Rates

The new treaty provides for a maximum rate of withholding tax of 5% on dividends, interest and royalties. While this is an improvement compared with the 1985 treaty, which provided for a 10% withholding tax on dividends, interest and royalties paid to Cyprus, it is not likely to have a major effect in practice since both Slovenia and Cyprus have implemented the EU Parent-Subsidiary Directive and the Interest and Royalties Directive, which means that a nil withholding tax rate will be available in most cases in any event.

Capital Gains Tax

The new treaty provides that capital gains on the disposal of shares in property-rich companies (companies which derive the majority of their value from immovable property situated in one of the contracting states) may be subjected to tax in the state where the immovable property is situated. The new treaty restricts this provision to the disposal of shares, and does not mention the disposal of other instruments. Other treaties based on the OECD Model tax gains on shares “and other similar interests” in property-rich companies in the country where the property is located.

Profits from international shipping operations

The new treaty gives exclusive taxing rights over profits derived by an enterprise of a contacting state from ships operating in international traffic to the state of the enterprise. Both the 1985 treaty and the current OECD Model Convention give the exclusive taxing rights to the state in which the place of effective management of the enterprise is situated.

In practice this should not make a difference, since tax residence in both countries is based on the place of management and control.

Other amendments

The articles on mutual agreement procedures and exchange of information have been aligned with the equivalent provisions of the current OECD Model Convention equivalent provisions and the obligations and powers of the contracting states have been clarified.

The above is intended to provide a brief guide only. It is essential that appropriate professional advice is obtained.