Cyprus Ukraine Double Tax Treaty

The Ukrainian Parliament on 30th October 2019 ratified the Protocol amending the Double Tax Treaty between Cyprus and Ukraine which was previously ratified by the Cypriot Government. The amending protocol is now in force and effective from 1st of January 2020.

Below is a summary of the main provisions of the protocol:

Dividends: Provided that the beneficial owner is a company (other than a partnership) which holds directly at least 20% of the capital of the dividend paying company and has invested at least €100,000 in the acquisition of shares or other rights of the company, the withholding tax remains unchanged at 5%.

In all other cases, the withholding tax shall be 10% of the gross dividends.

Interest: Withholding tax on gross interest will be 5% (previously 2%) provided that the recipient is the beneficial owner of the interest income.

Capital Gains: Capital Gains derived by a resident of a State from the disposal of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State, may be taxed in that other State with certain exceptions. Any other disposal of property (including shares) is taxed only in the State of the alienator provided that the property is subject to tax in that State.

Most favored Nation clause: The protocol provides that if, after 2 July 2015, Ukraine agrees, under a Treaty with another country, to grant an exemption from tax in Ukraine on dividends, interest or royalty payments arising in Ukraine, or to apply lower rates of tax in Ukraine to such payments than those provided by the respective Articles of the Treaty, or to include more favorable provisions in Article 13 “Capital Gains”, then the States have the right to renegotiate these Articles with a view to applying such exemption or lower rates to this Treaty.

Developments are expected on the provisions of the Double Tax Treaty between Cyprus and Ukraine as Ukraine has included more favorable provisions in recent signed Treaties, especially in Article 13 “Capital Gains”.  The Cyprus Ministry of Finance has already applied to the Ukrainian Republic for the renegotiation of the provisions of Article 13 of the Treaty.