Double Tax Treaty signed between Cyprus and Kazakhstan
On the 15th May of 2019, the Government of the Republic of Cyprus and the Government of the Republic of Kazakhstan signed an agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. The Treaty was signed by the Minister of Foreign Affairs of the Republic of Cyprus, Nikos Christodoulides, and the First Deputy Prime Minister of Finance of the Republic of Kazakhstan, Alikhan Smailov, at Nursultan. It should be pointed out, that the Treaty is based on OECD Model Convention for the avoidance of double taxation on income and on capital and aims, at avoiding double taxation of both Republic of Cyprus and Kazakhstan residents, through privileged provisions.
We set out below an overview of the privileged provisions of the Double Taxation Treaty:
Based on article 2 of the Convention, the existing taxes to which the Convention shall apply are in particular in the case of the Republic of Cyprus: (i) the income tax; (ii) the corporate income tax; (iii) the special contribution for the Defense of the Republic; (iv) the capital gains tax, and in the case of Kazakhstan: (i) the corporate income tax; and (ii) the individual income tax.
As per the article 10 of the Convention, dividends paid by a company may be taxed in the Contracting State (Republic of Cyprus or Kazakhstan) of which the company paying the dividends is a resident and according to the laws of that Contracting State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends. For other cases, the 15% of the gross amount of the dividends shall be applied.
In line with the Double Tax Treaty, another main provision is the article 11 related to interest arising in a Contracting State and paid to a beneficial owner which is a resident of the other Contracting State may be taxed in that other Contracting State. A maximum 10% of the gross amount of the interest shall be charged when the beneficial owner of the interest is a resident of the other Contracting State. Notwithstanding the provision of the paragraph 2 of the article 11, interest arising in a Contracting State shall be exempt from tax in that Contracting State if the beneficial owner of the interest is the Government of the other Contracting State or a political subdivision, a central or a local authority, the Central bank or any other financial institution wholly owned by the Government of the other Contracting State.
Furthermore, based on article 12 a maximum 10% rate in the case of royalty payments. Royalties payments are in consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, software, including cinematograph films, tapes for radio or television broadcasting any patent, trade mark, design or model, plan, secret formula or process, or for information (know how) concerning industrial, commercial or scientific experience and payments for the use of, or the right to use, industrial commercial or scientific equipment. However, the term of royalties will not include income or payments for the use of, or the right to use ships or aircrafts.
Undoubtedly, the double tax treaty between the Republic of Cyprus and the Republic of Kazakhstan will strengthen the economic and commercial relations between the two countries. The provisions of the treaty with respect to taxes will have effect on or after 1 January post ratification.