The commercial and financial relations between Cyprus and Ukraine have been governed by the 1982 DTAA between Cyprus and the USSR. Given the continuously increased economic activities between the two countries (Cyprus is ranked as the jurisdiction with the highest amount of Direct Investment in Ukraine) a new DTAA was signed on 8 November 2012 during an official visit of the President of Ukraine Viktor Yanukovych in Cyprus.
The treaty sign off was well received by the business communities of the two countries and it further enhances Cyprus position as an international business center, since some of its provisions are deemed to be significantly favorable. The DTAA’s main provisions are analyzed below:
Permanent Establishment
A building site or construction or installation project or any supervisory activities in connection with such site or project constitutes a permanent establishment only if it lasts more than 12 months (definition in compliance with OECD model).
Dividends
In cases where the investment of the beneficial owner in the company paying the dividend is at least 20% (of the total shares) or had a cost of at least €100,000, the withholding tax rate is set at 5%. In all other cases the withholding tax rate is 15%.
Interest
The withholding tax rate on interest was set at 2%.
Royalties
The withholding tax rate on royalties in respect of any copyright of scientific work, patents, trademarks, secret formula, process or information concerning industrial, commercial or scientific experience is 5% (10% in all other cases).
Gains
The DTAA includes highly favorable provisions in relation to taxing rights with respect to capital gains arising from a disposal of shares or any other movable property. Those rights are granted to the country in which the person making the disposal is a tax resident irrespective of the underlying assets of the company in which the shares are being disposed of.
Limitation of benefits clause
The DTAA does not include a limitation of benefits clause.
The DTAA will enter into effect on 1 January following the year in which the parties exchange notifications of ratification.