Protocol to the Cyprus-Ukraine double tax treaty now in force

Following the ratification by the Ukrainian parliament on 30 October 2019 of the protocol to the double tax treaty (‘DTT’) between Cyprus and Ukraine – which was initially agreed in 2015 – the said protocol is now in force and will have effect as from 01 January 2020.

The main amendments effected by protocol are the following:

In relation to dividends the protocol provides for a 5% withholding tax if the beneficial owner is a company directly holding at least 20% of the company paying the dividend and it has invested more than EUR 100.000 to acquire the shares. Otherwise the withholding tax to be imposed is 10%.

The withholding tax on interest is increased from 2% to 5%, assuming the recipient is the beneficial owner of the interest.

Gains from the disposal of shares of property rich companies (at least 50% of their value derives from immovable property) are taxable in the country where the immovable property is situated. This is subject to specific exceptions including the sale of shares of public companies and gains resulting from a reorganization.

The protocol also includes a ‘most favoured nation’ clause. This stipulates that if Ukraine after 02 July 2015 enters into a DTT with another country to grant a tax exemption or provide a lower tax rate on dividends, interest or royalties, or to include more favourable provisions relating to capital gains, then Cyprus has the right to renegotiate the relevant articles of the DTT between Cyprus and Ukraine, for the purposes of applying the same exemption or reduced rates or more favourable provisions.

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