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The double tax treaty between Cyprus and the Islamic Republic of Iran (signed on 4 August 2015) has come into force and will become effective as of 1 January 2018. Taxand Cyprus provides an overview.
The treaty is based on the OECD Model Tax Convention and the main provisions are briefly outlined below:
Taxes covered:
In the case of the Islamic Republic of Iran, the double tax treaty will apply to income tax, whilst for the case of Cyprus it will apply to income tax, corporate income tax, special contribution for defense and capital gains tax.
Dividends:
A 5% withholding tax on dividends paid is applicable if the beneficial owner of the dividend is a company (other than a partnership) holding a minimum of 25% of the capital of the dividend-paying company. In all other cases, 10% withholding tax on dividends is to be paid.
Interest:
The withholding tax rate on interest is not to exceed 5% of the gross amount, provided that the recipient is the beneficial owner of the interest. It should be noted that Cyprus does not levy withholding tax on interest currently.
Royalties:
The treaty provides for a 6% withholding tax rate on the gross amount of royalties, again on the grounds that the recipient is the beneficial owner of the royalties.
Capital Gains:
Gains of a resident of one state arising from the disposal of immovable property situated in the other state may be taxed in that other state (where the property is located).
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We advise clients to seek assistance in closely examining the impact of this new doubly tax treaty on their business.