Limassol - Cyprus, February 2013 – Cyprus and Spain have signed a Double Tax Treaty, effectively removing Cyprus from the Spanish ‘blacklist’.
The development is expected to encourage investments between the two countries, which were so far hindered due to the blacklist.
The bilateral agreement was signed in February 2013 by representatives of both countries and shall come into force three months after its ratification. The treaty will apply for taxes on income and capital, at the beginning of the year following the date the treaty enters into force.
The agreement is in line with the OECD model tax convention of 2010 on all aspects (e.g. permanent establishment and exchange of information provisions).
The withholding tax rates on dividends, interest and royalties is 0%, whereas in the case of dividends there shall be a 5% withholding tax if the participation holding is less than 10%. It is noted that Cyprus does not impose any withholding taxes on outbound payments.
Capital gains on property rich companies are taxed where the property is situated.
The agreement does not include a Limitation of Benefits clause, even though the protocol to the treaty specifies that domestic anti-abuse provisions shall be applied in cases of misuse.