Double Taxation Treaty Between Cyprus and the Netherlands
On 1 June, 2021, the Netherlands and the Republic of Cyprus signed a tax treaty for the avoidance of double taxation. Cyprus has been the last member of the European Economic Area that had concluded a double tax treaty with the Netherlands. The treaty will come into force once the necessary legal procedures are completed, on or after 1 January, 2022.
The treaty between Cyprus and the Netherlands aims to strengthen the cross border cooperation as well as promote cross-border investments. It is based on the OECD model tax convention and contains the standard provisions to avoid double taxation of income and capital.
This tax treaty will provide for full relief of withholding tax on dividend payments if the beneficial owner of a company that holds directly at least 5% of the capital of the company paying the dividends, throughout a 365-day period including the day of the dividend payment.
This exemption also applies for certain recognized pension funds, which are generally exempt under the Cyprus corporate income tax law.
Combined with the nil withholding tax rate for interest and royalties, the Cyprus-Netherlands tax treaty presents a beneficial legal framework for cross-border investments.
The legal framework first needs to be ratified by the Dutch parliament. There has been no official date as to when the treaty will come into force even though the ratification process for Cyprus has been completed.