Cyprus and Croatia: A New Era in Tax Cooperation

Overview

In a landmark move on October 27, 2023, Cyprus took a significant step in international finance by ratifying the Double Tax Treaty with Croatia. The treaty was signed on October 17, 2023, by finance ministers from both nations. It aligns closely with the OECD Model Tax Treaty and addresses crucial Base Erosion and Profit Shifting (BEPS) minimum standards.

Activation Timeline: Following the ratification by Cyprus, the treaty is set to take effect in the year subsequent to the ratification by the Republic of Croatia. It will supplant the treaty between Cyprus and the now-defunct Socialist Federal Republic of Yugoslavia.

Key Treaty Provisions

Dividends

• Withholding Tax Rate: A 5% for the recipient/beneficial owner of the dividends.

Interest

• Zero Withholding Tax: In specific scenarios like:

• Credit sales of industrial/commercial/scientific equipment.
• Credit-based sales between enterprises.
• Bank-provided loans of any kind.
• Standard Rate: A 5% in other situations.

Royalties

• Withholding Tax Rate: Again, just 5% for the recipient/beneficial owner of the royalties.

Capital Gains

• Taxation Rights: Granted to the state where the immovable property is located if more than 50% of the share value comes from such property within 365 days before the sale.
• Exceptions: Notable exclusions for shares listed on approved stock exchanges, during corporate restructuring, or when sold by recognized pension funds.

Limitation to Benefits

• Principal Purpose Test: Benefits under this treaty are subject to scrutiny, ensuring the primary intent isn't solely to obtain these benefits.

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By staying ahead of these changes, you can ensure compliance and strategic alignment with evolving tax norms in the EU. For more information, contact Charles Savva at [email protected] or [email protected].