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Cyprus-Saudi Arabia

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Tax Treaty between Cyprus and Saudi Arabia to Enter into Force

The income tax treaty between Cyprus and Saudi Arabia will enter into force on 1 March 2019. The treaty, signed 3 January 2018, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cypriot income tax, corporate income tax, the special contribution for the Defense of the Republic, and capital gains tax. It covers Saudi Zakat and income tax, including the natural gas investment tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends – 0% if the beneficial owner is a company that directly or indirectly holds at least 25% of the paying company's capital; otherwise 5%
  • Interest - 0%
  • Royalties - 5% on royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment; otherwise 8%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares or other rights representing a substantial participation in the capital of a company resident in the other State, unless the company is listed on a stock exchange (substantial participation means at least 25% of the company's capital at any time in the 12-month period prior to the alienation taking place).

Further to the above, the final protocol to the treaty provides that any gains derived from the alienation of rights, including shares or interests in a trust or partnership deriving the greater part of their value from such rights, in connection with the exploration or exploitation of the seabed and its subsoil and their natural resources on the territorial sea, as well as any area outside the territorial sea, including the Contiguous Zone, the Exclusive Economic Zone, or the Continental Shelf of a Contracting State, may be taxed in that Contracting State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Non-Discrimination

The treaty does not include a non-discrimination article, although the final protocol to the treaty provides that in the case in which Saudi Arabia will introduce an income tax applicable to its nationals who are residents of Saudi Arabia, or the existing tax will be modified accordingly, then the two Contracting States shall enter into negotiations in order to introduce an article on non-discrimination in the treaty.

Effective Date

The treaty applies from 1 January 2020.

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