Double Tax Treaty between Cyprus and Spain Ratified

New treaty expected to come into effect from 1st January 2014

The new double tax treaty between Cyprus and Spain that was signed on February the 14th, 2013 was ratified by the Spanish Congress on the 6th of September 2013. The Government of Cyprus had ratified the new treaty on March the 22nd.

The new treaty will come into force upon the official exchange of the ratified documents between the Governments of Spain and Cyprus and is expected to come in effect on the 1st of January 2014.

The main provisions of the new treaty can be summarized as follows:

• Dividend payments will be subject to a 5% withholding tax;
• Interest payments will not be subject to any withholding tax;
• Royalty payments will not be subject to any withholding tax;
• Capital Gains from the direct sale of shares in “property-rich” companies will be taxed in the country where the immovable property is situated.

It is interesting to note that a Limitation of Benefits (LOB) provision has not been inserted in the treaty. However, the Protocol to the treaty clearly stipulates that domestic anti-abuse provisions will apply.

Removal from the Spanish “black list”.

Cyprus has to date been included in the Spanish “black list” of uncooperative jurisdictions. As the new treaty adheres to the international standards on exchange of information, Cyprus is expected to be excluded from this list. As a result of this very positive development, the economic interaction between the two countries is expected to gain a welcoming momentum.