A double tax treaty between Spain and Cyprus has entered into force, and the new Spanish-Oman treaty is awaiting ratification, meaning that Cyprus has now moved off Spain's "black list", and Oman will do so once the treaty enters into force.
The Sultanate of Oman and Cyprus were considered as low tax jurisdictions for Spanish tax purposes, resulting in additional requirements and limitations for the application of certain tax benefits. However, Spanish law provides that a State will no longer be considered as a tax haven if it enters into (i) a DTT with Spain, which includes an information exchange clause, or (ii) a tax information exchange agreement, that would expressly exclude the jurisdiction from these regulations.
Following recent developments within OECD countries, many countries or territories included in such “black lists” for tax purposes have committed to signing tax information exchange agreements. In this sense, Spain has signed or is currently negotiating such agreements with several of these countries. Within the past six years Spain has signed agreements which have resulted in the exclusion of these territories from Spain's black list (e.g., United Arab Emirates, Malta, Trinidad and Tobago, Andorra, Panama, etc.).
The Cypriot DTT
The Double Tax Treaty between Spain and Cyprus entered into force on 28 May 2014. As mentioned, The main features include:
Partnerships: For the purposes of the DTT, the term "national" includes Partnerships.
Dividends: 0 percent is applicable where the dividend recipient holds a direct stake of 10 percent (or alternatively 0 percent as well if the EU Parent Subsidiary Directive requirements are met). Otherwise, 5 percent.
Interest: There is no taxation at source on interest payments (0 percent WHT). Such payments will be exclusively taxable in the country of residence of the lender.
Royalties: A reduced tax rate of 0 percent WHT is applicable to royalty payments.
Real estate clause: In line with the current OECD model tax convention, income arising from real estate companies is taxed in the jurisdiction where the real estate is located. Furthermore, the fact that the real estate is devoted to a business activity does not prevent the application of this rule.
The Omani DTT
In recent years Spain has signed or is currently negotiating agreements with several Arab States of the Gulf. Specifically, DTTs have entered into force with Saudi Arabia, Kuwait and the United Arab Emirates (the UAE being formerly included in the Spanish black list as well as Oman). The Treaty with Oman has already been published and is awaiting finalization of diplomatic/parliamentary procedures in both countries before it is finally enacted. Once the DTT is enacted, Oman will be excluded from the Spanish blacklist.
To the extent DTT with Oman is not yet enacted the following chart could be of help in order to try to anticipate the potential impact of the DTT entering into force in the short/mid term. In this regard, we have relied on the existing treaties with Saudi Arabia, UAE and Kuwait, in order to provide a tentative tax treatment of the different types of income and regulations stated by the Omani draft.
Click here to view table.