Signature of the new double taxation agreement with Luxembourg

On 8 May 2017 the finance ministers of Cyprus and Luxembourg signed a double taxation agreement, the first between the two countries. Negotiations on the agreement had begun in 2007. According to the official announcement the text, which is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital, incorporates all the required international standards of information exchange and the requirements of the OECD’s Base Erosion and Profit Shifting project, thus providing predictability and legal certainty.

The text has not yet been published, but according to media reports withholding taxes on dividends are eliminated if there is at least 10% participation by a tax resident company and limited to 5% otherwise, withholding tax on interest is eliminated and withholding tax on royalties is also eliminated, as long as the recipient of the royalties is the beneficial owner of the income. It should be noted that Cyprus does not impose withholding taxes on dividends or interest in any case.

The agreement will enter into force once each country has notified the other that its domestic ratification procedures have been completed. Its provisions will take effect on the first day of the following calendar year.