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Andorra-Cyprus

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Update – Tax Treaty between Andorra and Cyprus

The income tax treaty between Andorra and Cyprus was signed on 18 May 2018. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Andorran corporate income tax, personal income tax, tax on income for fiscal non-residents, and tax payable on the increase in value in immovable property transfers. It covers Cyprus income tax, corporate income tax, the special contribution for the Defense of the Republic, and capital gains tax.

Withholding Tax Rates

  • Dividends – 0%
  • Interest – 0%
  • Royalties – 0%

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 deriving more than 50% for their value directly or indirectly from immovable property situated in the other State, with an exemption for shares listed on a recognized stock exchange of one or both Contracting State or an EU/EEA Member State, provided that the alienator directly or indirectly held not more than 25% of the capital of the company whose share are alienated at any time in the 12-month period preceding such alienation.

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

Offshore PE

Article 20 (Offshore Activities) provides that a permanent establishment will be deemed constituted if a resident of one Contracting State carries on offshore activities in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in the other State, if such activities continue for a period or periods aggregating more than 30 days in any 12-month period. In determining if the 30-day period has been exceeded, activities of an associated enterprise that are substantially the same will be included.

Article 20 also provides that gains derived by a resident of a Contracting State may be taxed by the other State if derived from the alienation of exploration or exploitation rights, property situated in the other State used in connection with exploration or exploitation, and shares deriving the greater part of their value directly or indirectly from such rights and property taken together.

Double Taxation Relief

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

Entitlement to Benefits

Article 27 (Entitlement to Benefits) includes the provision that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in the benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

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