Cyprus and Iran have concluded and signed a Double Taxation Avoidance Agreement (DTAA) on 4 August 2015.  The DTAA, is based on the OECD Model Convention and will come into force as from 1st January the year following the date upon which both countries complete the ratification procedures.

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

Based on the new treaty the definition of permanent establishment also includes 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 beneficial owner of the dividend is a company (other than partnership), which owns at least 25% of the shares of the company paying the dividend, the withholding tax rate is set at 5%.  In all other cases the withholding tax rate is 10%.

Interest

The withholding tax rate on interest is set at 5%.

Royalties

The withholding tax rate on royalties is set at 6% (e.g. for patents, trademarks, copyrights, secret formulas/processes relating to scientific, commercial and industrial experience, artistic or scientific work including films).

Capital gains

Gains from the disposal of immovable property are taxed in the country where the immovable property is situated.  Capital gains arising from the disposal of shares deriving more than 50% of their value directly or indirectly from immovable property in the other Contracting State may be taxed in that other State.  Other capital gains from the alienation of any other property are taxable only in the place of residence of the alienator.

Important note

The DTAA rates are deemed very favorable for international investment flows through Cyprus, given that with proper structuring withholding tax rates can be limited to a maximum of 6%, while gain from the disposal of shares is exempted from income and any other taxation in the island.

Limitation of benefits clause

The DTAA does not include a limitation of benefits clause.