The Cyprus Ministry of Finance has announced that agreement has been reached with its Ukrainian counterpart on a Protocol that will amend the existing double taxation agreement (DTA) between the two countries.  The existing DTA was signed in 2012 and entered into force on 1 January 2014. The Protocol, when signed and ratified by both countries, will enter into force no earlier than 1 January 2019.

According to the announcement issued by the Cyprus Ministry of Finance a “most favoured nation” clause has been agreed for the taxes on interest, dividends, royalties and capital gains, ensuring that Cyprus is treated no less favourably than any other of Ukraine’s DTA counterparties in the future.

An announcement on the website of the Ukrainian Ministry of Finance provides more details of the amendments made by the Protocol.

Dividends

The current DTA provides for withholding tax at 15% on dividends paid by Ukrainian companies to Cypriot shareholders, with a reduced rate of 5% if the beneficial owner owns more than 20% of the share capital of the company paying the dividend or has invested more than €100,000 in the shares. Under the Protocol the lower rate will apply only if both conditions are satisfied.

Interest

Under the current DTA the rate of withholding tax on interest paid by a Ukrainian debtor to a beneficial owner in Cyprus is 2%. When the Protocol takes effect it will increase to 5%.

Capital gains

The current DTA provides that capital gains derived from movable property, including shares in so-called “property-rich” companies, the assets of which principally comprise immovable property, are taxable only in the country of residence of the person making the disposal. When the Protocol enters into force, which will not be before 1 January 2019, gains on shares in “property-rich” companies will also be taxable in the country in which the immovable property is located.