Cyprus – U.S.A Double Tax Treaty

Cyprus USA Double Tax Treaty

 

The government of the Republic of Cyprus and the Government of the United States Of America, have signed an agreement on 19^th of March 1984, effective as from 31^st December 1985, for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

Cyprus USA Double Tax Treaty

Taxes Covered

In case of Cyprus – ‘’Cyprus Tax’’

1. The income tax
2. The Defence tax
3. The capital gains tax

In case of U.S.A – ‘’U.S.A Tax’’

1. The Federal income taxes
2. The excise taxes imposed on insurance premiums paid to foreign insurers and with respect to private foundations
3. The taxes of every kind imposed at the national, state, or local level

Resident (Article 3)

Resident of a contracting state means any person who, under the law of that state, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

If an individual is a resident of both contracting states then his status shall be determined by his permanent home or where his personal and economic relations are closer or the habitual abode or where he is a citizen or by mutual agreement.

Where a person other than individual or a corporation is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and to determine the mode of application of the Convention to such person.

Business Profits (Article 8)

Industrial or commercial profits of a resident of a Contracting State shall be exempt from tax by the other Contracting State unless such resident is engaged in industrial or commercial activity in that other Contracting State through a permanent establishment situated therein.

If such resident is so engaged, tax may be imposed by that other Contracting State on the industrial or commercial profits of such resident but only on so much of such profits as are attributable to the permanent establishment.

Permanent Establishment (Article 9)

The term ‘’permanent establishment’’ means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

The term “permanent establishment” includes specifically:

1. branch;
2. office;
3. factory;
4. workshop;
5. warehouse;
6. store or other sales outlet;
7. mine, quarry, or any other place for extracting natural resources.
8. a building or construction site that exists for more than 6 months.

Main sources of Income

Shipping and Air Transport (Article 10)

Income which a resident of a Contracting State derives from the operation in international traffic of ships or aircraft, including gains derived from the sale, exchange, or other disposition of such ships or aircraft, shall be exempt from tax by the other Contracting State.

Dividends (Article 12)

Dividends derived from sources within Cyprus by a resident of the United States shall not be subject to any tax imposed by Cyprus in excess of the tax imposed with respect to the profits or earnings out of which such dividends are paid.

The rate of tax imposed by the United States on dividends, derived from sources within the United States by a resident of Cyprus shall not exceed:

–          15 percent of the gross amount of the dividend; or

–          When the recipient is a corporation, 5 percent of the gross amount of the dividend if:

–          (i) During the part of the paying corporation’s taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation; and

(ii) Not more than 25 percent of the gross income of the paying corporation for such prior taxable year (if any) consists of interest or dividends

Interest (Article 13)

Interest derived from sources within a Contracting State by a resident of the other Contracting State may be taxed by both Contracting States.

The rate of tax imposed by a Contracting State on interest, derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed 10 percent of the gross amount of such interest.

Royalties (Article 14)

Royalties derived from sources within a Contracting State by a resident of the other Contracting State shall be exempt from tax by the first-mentioned Contracting State.

Real Property Tax (Article 15)

Income from real property may be taxed in the State in which such property is situated.

Artistes and Sportsmen (Article 19)

Income derived by public entertainers from their personal activities as such may be taxed in the contacting State in which these activities are exercised except where the amount of the gross receipts derived by such entertainer does not exceed five hundred United States dollars or its equivalent in Cypriot pounds per day, or five thousand United States dollars or its equivalent in Cypriot pounds for the taxable year concerned.

Director fees (Article 20)

Director fees and other similar payments derived by a resident of a contracting state in his capacity as a member of the board of directors of a company which is a resident of the other contracting state may be taxed in that other state.

Limitation on Benefits (Article 26)

A person (other than an individual) which is a resident of a Contracting State shall not be entitled under this Convention to relief from taxation in the other Contracting State unless

(a) more than 75 percent of the beneficial interest in such person (or in the case of a corporation, more than 75 percent of the number of shares of each class of the corporation’s shares) is owned, directly or indirectly, by one or more individual residents of the first mentioned Contracting State; and

(b) the gross income of such person is not used in substantial part, directly or indirectly, to meet liabilities (including liabilities for interest or royalties) to persons who are residents of a State other than a Contracting State and who are not citizens of the United States.

Mutual Agreement Procedure (Article 27)

Where a person considers that the actions of one or both of the contracting states result or will result for him in taxation not with the provisions of this convention, he may, irrespective of the remedies provided by the domestic law of those states, present his case to the competent authority the contracting state which he is a resident.

 

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written by Alexandros Constantinou, Head of Tax Dept.