A Convention, for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, has been concluded between Cyprus and Latvia on 24 May 2016.
The Agreement shall apply to any person who is either a resident of one or both of the above Contracting States.
The main provisions of the Convention are amongst others, the following:
i. Article 2 provides that the provisions of the Convention apply to taxes on income imposed to on behalf of a Contracting States, etc.
As taxes on income are considered all taxes imposed on total income or on elements of income ( i.e taxes on gains).
The existing taxes to which this Convention applies are:
IN THE CASE OF CYPRUS:
- the income tax;
- the corporate income tax;
- the special contribution for the Defence of the Republic;
- the capital gains tax;
IN THE CASE OF LATVIA:
- the enterprise income tax;
- the personal income tax;
ii. Pursuant to Article 5 the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. The permanent establishment includes, inter alia, a place of management, a branch and an office etc.
iii. Dividends, interest androyalties paid by a Company, resident in one Contracting State to a resident of the other are subjected to zero tax in the contacting state from which they originate provided that the beneficial owner of the dividend, interest, or royalty is a company ( but not a partnership) resident in the second contracting state.
In all other cases, tax payable is limited to 10% of the gross amount in the case of dividends and interest and 5% of the gross amount in the case of royalties.
iv. Article 13 refers to Capital gains as follows:
- Income or gains derived by a resident of a Contracting State from the alienation of immovable property, situated in the other Contracting State may be taxed in that other State.
- Gains on disposal of shares or comparable interests in a company or other entity deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.
- Gains from the alienation of movable property forming part of the business property of apermanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
- Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.
- Gains from the alienation of all other property are taxable only in the Contracting State of which the alienator is a resident.
v. In Cyprus, the elimination of double taxation shall be made by a credit method. The Latvian tax paid shall be considered as a credit against Cyprus tax, payable in respect of any item of income derived from Latvia. The credit shall not, however, exceed that part of the Cyprus tax, as computed before the credit is given, which is appropriate to such items of income.
In Latvia double taxation shall be eliminated as follows:
- Where a resident of Latvia derives income which, in accordance with this Convention, may be in Cyprus, unless a more favourable treatment is provided in its domestic law, Latvia shall allow as a deduction from the tax on the income of that resident, an amount equal to the income tax paid thereon in Cyprus.
- Such deduction shall not, however, exceed that part of the income tax in Latvia as computed before the deduction is given, which is attributable, to the income which may be taxed in Cyprus.