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Cyprus Signs a Tax Treaty with Saudi Arabia for the Avoidance of Double Taxation

The Republic of Cyprus has recently concluded a Double Tax Treaty with Kingdom of Saudi Arabia. The treaty was signed on the 3rd of January 2018.

The new treaty shall enter into force upon both Cyprus and Saudi Arabia exchanging notifications that the formal ratification procedures have been completed. The provisions of the treaty with respect to taxes will have effect in both contracting states on or after 1 January post ratification.  

The new treaty is based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention framework, with some modifications and will contribute to the expansion of Cyprus’ trade and economic relations between the two countries.

The preamble to the double tax treaty refers to both the avoidance of double taxation and prevention of tax evasion.

The main provisions of the Double Tax Treaty

The convention shall apply to the following taxes:

  1. In the Republic of Cyprus:
    • The income tax
    • The corporate income tax
    • The special contribution for the defence of the Republic; and
    • The capital gains tax
  1. In the Kingdom of Saudi Arabia:
    • The Zakat; and
    • The income tax including the natural gas investment tax

Permanent Establishment

The definition of the permanent establishment in the context of the double tax treaty is a fixed place of a business through which the business of an enterprise is wholly or partly carried on. Any building site or construction or installation project constitutes a permanent establishment only if it lasts more than 6 months.

Capital Gains Tax

Gains from the disposal of immovable property are taxed in the country where the immovable property is situated.

The term “immovable property” shall have the meaning which it has under the laws of the Contracting State in which the property in question is situated.

Gains from the alienation of substantial participation (at least 25%) in a company which is resident of a Contracting State may be taxed in that Contracting State.

Shipping and Air Transport

Profits from the operations of ships or aircraft in international traffic shall be taxed only in the Contracting State in which the place of effective management is situated.

Directors’ fees

Directors’ fees 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.

Withholding tax rate on interest payments

  • 0% withholding tax

Interest includes income from Debt-Claims arising in a Contracting State and paid to a resident of the other Contracting State.

Withholding tax rate on dividend payments

  • 5% withholding tax

Withholding tax rate on royalties payments

  • 5% withholding tax on the use of industrial commercial and scientific equipment / 8% on all other.

For further information or assistance, please do not hesitate to contact us.