Following the signing of a protocol amending the double tax treaty between Ukraine and Cyprus on 20 December 2015 (replacing the old Cyprus – USSR treaty), the following two provisions of the treaty are affected:
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The withholding tax on dividends paid shall apply as follows:
5% on withholding tax on dividends paid I the case that the beneficial owner of the dividends is a company holding at least 20% of the capital of the company paying the dividends and has invested in the acquisition of the shares worth at least €100.000.
10% in all other cases
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The withholding tax on interest paid is increased to 5%
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Capital gains from the sale of shares of property rich companies where at least 50% of the value of assets represents immovable property will be taxable in the country where the immovable property is located
The above provisions shall not apply in cases of alienation of shares:
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Where shares or the alienator are listed on an approved stock exchange
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Where the immovable property from which the shares derived their value is the immovable property from where the business is carried out
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Where shares belong to public companies or the alienator is a public company
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In the course of corporate reorganization
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Similar interest in Real Estate Funds
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Where the alienator is a pension fund, provident fund or similar entity
It is also worth noting that Cyprus has been granted the most favoured nation provision, stipulating that in the case where Ukraine, in future, enters into Double Tax Agreements (DTA) with other countries under which the provisions are more favourable in terms of dividends, interest, royalties and capital gains than those provided in the Cyprus – Ukraine DTA, will be amended to incorporate these more favourable rates and provisions.
The Protocol is expected to enter into force on 1 January 2019.