Tax treaty Signed between Cyprus and Luxembourg 

The double taxation avoidance agreement between the Republic of Cyprus and the Grand Duchy of Luxembourg was singed on 8 May 2017 and is awaiting ratification. The treaty, which is generally based on the OECD model tax conversion framework with some modifications, provides for the following maximum withholding tax rates on dividends, interest and royalty payments as follows:

Dividends
Nil (0) withholding tax (WHT) on dividends paid to a company that holds directly at least 10% of the capital of the dividend paying company; otherwise, the rate will be 5%.

Interest
Nil (0) WHT on interest paid to a resident of the other contracting state.

Royalties
Nil (0) WHT on royalties paid to a resident of the other contracting state.

For the purposes of the treaty, the two countries have agreed that a collective investment vehicle will be considered a resident of a contracting state if, under the domestic law of that state, it is liable to tax therein by reason of its domicile, residence, place of management or any other criterion of a similar nature. A collective investment vehicle will be considered as subject to tax if it is subject to the tax laws of that contracting state irrespective if it is exempt from tax.

The treaty applies to taxes on income as well as on gains from alienation of movable or immovable property. In the case of Luxembourg, the treaty covers the income tax, the corporation tax, the capital tax and the communal trade tax, whereas in the case of Cyprus, it covers corporate and personal income tax, defense tax and capital gains tax.
The treaty also includes provisions for the exchange of financial and other information in accordance with the OECD model treaty.

The treaty is expected to strengthen economic ties between the two EU member states. It is expected to enter into force assuming both Cyprus and Luxembourg exchange notifications that their formal ratification procedures have been completed before the end of 2017. The provisions of the treaty with respect to taxes will have effect in both contracting states on or after 1 January 2018 following the date the treaty enters into force.

If you wish to know more about Cyprus-Luxembourg double tax treaty and how it may affect you, please contact our director, Savvas Shiatis at SShiatis@oneworldweb.net  for a complimentary consultation.