Amendments to the Convention between the Government of Ukraine and the Government of Cyprus on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and on Property

On 11 December 2015 the representatives of the governments of Ukraine and Cyprus have signed the Protocol on amending the Convention between the Government of Ukraine and the Government of Cyprus on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and on Property (the “Convention”).

In particular, the following changes are foreseen by the Protocol:

  • An increase of the withholding tax rate on interest payment to 5 percent (the current version of the Convention foresees 2 percent withholding tax rate on interest payment.)
  • A change of criteria for application of the 5 percent withholding tax rate on dividend payment – this being said, to apply a 5 percent rate, the recipient of dividends will simultaneously have to own at least 20 percent of the shares of the Ukrainian company and to invest at least €100,000 in its authorized capital (the current version of the Convention provides that only one of the criteria shall be fulfilled.)
  • A change to the taxation rules on disposal of shares/corporate rights: capital gains from the alienation of shares of the Ukrainian company deriving their value or the majority of their value directly or indirectly from immovable property situated in Ukraine, shall be taxable in Ukraine (the current version of the Convention provides that the capital gains obtained by a Cyprus resident from the alienation of shares of the Ukrainian company shall be taxed only in Cyprus.)

It is supposed that the changes shall become effective not earlier than 1 January 2019 subject to ratification by the governments of Ukraine and Cyprus.