Ukraine-Cyprus Double Taxation Convention: Tax Rate Revision of Certain Passive Incomes

The Ministry of Finance of Ukraine and the Government of the Republic of Cyprus have agreed on increasing of the tax rate on passive incomes. As a result of the negotiations between representatives of both countries it was agreed to revise certain passive income tax rates determined by the Double Tax Treaty.

The Ministry of Finance and the Government of Cyprus undertook to sign the new Double Tax Treaty that should be in line with the OECD recommendations. The main changes in Double Tax Treaty with Cyprus will be the increase of the tax rate on passive income received in the signatory country.

The most important changes will be the following:

• In Ukraine incomes are not taxed where residents of Cyprus receive from the disposal of stock and other corporative rights, more than 50% of costs which are connected directly or mediated with estate or property located in Ukraine.
• A mandatory condition for the application of a 5% withholding tax on dividends will not only a 20% share of ownership in a company that pays dividends but also an invested at least 100 000 EUR to the nominal share capital of the Ukrainian company. The crucial moment is that now either if the above-mentioned condition may be met in order to receive the incentive. In the event of introduction of the new rules both conditions will be obligatory.
• An agreement on a 5% tax rate for the payment of interest (now it’s only 2%).

If the Convention is signed and ratified by the respective Parliaments of Ukraine and Cyprus, the new conditions of taxation on passive incomes will come into force, as stated in Article 27 of the valid Convention, no sooner than 2019.