News / Cyprus – Luxembourg Double Taxation Agreement

Cyprus – Luxembourg Double Taxation Agreement

On May 21st, 2018 the new double taxation agreement between Cyprus and Luxembourg, entered into force and arising from January 1, 2019 they will apply.
The provisions of the agreement will apply to income, with regard to taxes deducted at source, and for tax years beginning on or after the date fit other taxes.
This agreement is the first between the two countries and it’s closely follows the latest OECD Model Convention, in line with the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, of which both countries are signatories.

Taxes which covered by the Double Taxation Agreement are:
In Luxembourg: Income tax on individuals;
Corporation tax, Capital tax and Communal trade tax;
In Cyprus:
Income tax, corporate income tax, Capital gains tax and Special Contribution for the Defence of the Republic (commonly referred to as SDC tax).

The tie – break provisions for determining residence for individuals who resident in both countries are the same as in the OECD Model Convention.

Permanent Residence
If the establishment of a building site or of a construction or an installation project, lasts more than 12 months, will constitute a permanent if it.

Income from Immovable Property
Income from immovable property may be taxed in the contracting state where the property is situated.
Business profits
The profits of an enterprise are taxable only in the contracting state in which it is resident unless it carries on business in the other contracting state through a permanent establishment there. Profits are to be calculated on an arm’s length basis.

Profits from Shipping and Aviation
Profits from the operation of ships and aircraft in international traffic are taxable only in the contracting state in which the enterprise is resident.

Dividends paid by a company resident in one contracting state to a resident of the other are subject to zero tax in the contracting state from which they originate as long as the beneficial owner of the dividend is a company (but not a partnership) resident in the second contracting state which directly holds at least 10 percent of the capital of the company paying the dividends.

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