Cyprus – Kazakhstan Double Tax treaty enters in to force. The first tax treaty for the avoidance of double taxation between Cyprus and Kazakhstan.
On 17 January 2020, the Cyprus-Kazakhstan double tax treaty for the avoidance of double taxation (hereinafter “the Treaty”) entered into force. The application of its provisions commences on 01 January 2021. Cyprus – that ratified the Treaty on 24 May 2019 – already has a vast network of double taxation treaties and with this development, it further strengthened its position as an investment hub for Kazakhstan and the wider Eurasian region.
The key features of the Treaty are analysed below:
Permanent establishment (PE)
- Article 5 of the Treaty contains a definition of PE used to determine the threshold for taxation of business profits in the source state. The wording of this article is largely in line with the wording of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention.
- A maximum 5% withholding tax (WHT) rate applies on dividend payments where the recipient is a company (partnership excluded) that directly holds at least 10% of the capital of the paying company. For other cases, the Treaty provides for a maximum 15% WHT rate on dividends. We note that as per the domestic Cyprus tax legislation no Cyprus WHT applies on dividend payments.
- A maximum 10% WHT rate applies on interest payments. For certain interest payments towards the Government, the Treaty provides for a 0% WHT rate. Domestic Cyprus tax legislation does not apply WHT interest payments to non-Cyprus tax residents.
- A maximum 10% WHT rate applies in the case of royalty payments. Royalty payments are in consideration for: the use of, or the right to use, any copyright of literary, artistic or scientific work, software, including cinematograph films, tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information (know how) concerning industrial, commercial or scientific experience and payments for the use of, or the right to use, industrial commercial or scientific equipment. Such royalty payments contained in the Treaty do not include payments for the use of, or the right to use, ships or aircrafts. Cyprus domestic tax legislation does not apply any EHT on royalty payment to non-Cyprus tax residents (except in the case of royalty payments earned on rights used within Cyprus).
- Under the Treaty, gains derived by a resident of a Contracting State from the alienation of shares or comparable interests in the capital of a company deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other Contracting State. Gains derived from alienation of shares listed on an approved stock exchange are excluded.
Other key considerations
- Article 6 of the Treaty provides that any income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other Contracting State. In addition, the term immovable property includes rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources, Further article 26 of the Treaty includes a provision on the exchange of information between competent authorities of the Contracting States. The relevant wording of this article is in line with the wording of the OECD Model Tax Convention.
- Also, article 29 of the Treaty includes essentially a principal purpose test (PPT), whereby a benefit under the Treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the objective and purpose of the relevant provisions of the Treaty.