Cyprus and Spain have concluded and signed a Double Taxation Avoidance Agreement (DTAA) on 14 February 2013. The DTAA, which is based on the OECD Model Convention, was signed by the Cyprus Minister of Finance and the Ambassador of Spain in Cyprus. It is our belief that the treaty will further enhance the business cooperation between the two EU countries, since foreign investors can now use Cyprus as a tax efficient gateway for investments in Spain and Spanish investors as a gateway to Russia and other non-EU countries with which Cyprus maintains favorable treaties.

The DTAA’s main provisions are analyzed below:

Dividends
The withholding tax rate on dividend payments is set at 0% if the beneficial owner is a company holding at least 10% of the shares of the company paying the dividend and 5% in all other cases.

Interest
The withholding tax rate on interest is set at 0%.

Royalties
The withholding tax rate on royalties is set at 0% (e.g. for patents, trademarks, copyrights, secret formulas/processes relating to scientific, commercial and industrial experience, artistic or scientific work including films).

Gains
Gains from the disposal of immovable property are taxed in the country where the immovable property is situated.

Gains from the disposal of shares are taxed in the country where the seller is situated. The DTAA provides for taxing transactions involving disposal of shares in property rich companies (more than 50% of their value deriving from immovable property) in the country in which the immovable property is situated.

Important note
The DTAA rates are deemed very favorable for international investment flows through Cyprus, given that dividend income and gain from the disposal of shares are exempted from income and any other taxation in the island.