Double Tax Agreements

A low tax rate alone does not make a financial centre attractive. Without a wide network of double tax agreements a jurisdiction cannot play an important role in international tax planning. The important position of Cyprus in international tax structures is partly explained by its extended network of double tax agreements which is continuously increasing.

Cyprus has concluded tax treaties with 45 countries including the majority of the European countries, the United States of America, Canada, India, China, Russia and Ukraine.

This extensive network is unusual for an international financial centre and the effect is that Cyprus is a very effective location for holding and investment companies.

The common characteristic of all the double tax treaties Cyprus has signed is that they all reduce or eliminate the normal withholding taxes imposed by the contracting states on dividends, interest and royalty payments. Cyprus does not impose withholding tax on payments of dividend, interest and royalties (in most cases) paid by Cyprus companies. Therefore, the Cyprus international business company is mostly used to receive dividends, interest, royalties and capital gains from another treaty country so that withholding tax is reduced.

It should also be borne in mind that the owners of a Cyprus international business company need not necessarily be from a treaty country because, as already explained, Cyprus does not impose withholding tax. Usually the aim is to collect income from other treaty countries so that withholding tax is reduced or eliminated.