A New Treaty Following the Lifting of Sanctions
Cyprus concluded a double tax treaty (DTT) with Iran on 4 August 2015. The treaty was signed during a visit of the Iranian delegation to Cyprus, shortly after the decision of the international community to lift the sanctions imposed on Iran, pursuant to the nuclear agreement between Iran and the West.
The treaty is based on the framework of the OECD Model Tax Convention and is expected to contribute to the expansion of Cyprus’s trade and economic relations with Iran. Following ratification by both countries, the treaty was to enter into force on 1 January of the year following completion of the ratification process.
Permanent Establishment
The definition of permanent establishment contained in the treaty is aligned with that of the OECD Model Tax Convention. In particular, a building site, construction or installation project, or any supervisory activity in connection with such a site or project, constitutes a permanent establishment only if it lasts for more than twelve months.
Withholding Tax Rates
The treaty sets maximum withholding tax rates on the principal categories of cross-border income:
- Dividends: 5% where the beneficial owner is a company holding at least 25% of the capital of the company paying the dividend; 10% in all other cases
- Interest: 5%
- Royalties: 6%
A Note on Domestic Rates
At the time of signing, neither Cyprus nor Iran levied any withholding tax on dividends under domestic law. The treaty rates therefore apply only in the event that a contracting state imposes withholding tax under its domestic legislation.
Capital Gains
The treaty allocates taxing rights over capital gains as follows:
- Gains from the disposal of immovable property may be taxed in the country where the immovable property is situated
- Gains from the disposal of shares deriving more than 50% of their value, directly or indirectly, from immovable property may be taxed in the country in which that immovable property is situated
How ASC Can Help
ASC advises on the application of Cyprus’s extensive double tax treaty network to cross-border structures and transactions, including permanent establishment analysis, withholding tax optimisation, and the treatment of capital gains. Contact us to discuss how the Cyprus–Iran treaty may apply to your arrangements.