Cyprus – Iran Double tax treaty – Legal Update
On the 4th of August 2015, after lengthy negotiations, the first double tax agreement between Cyprus and Iran was signed. As with many of Cyprus' recent double tax agreements, it broadly follows the 2010 Organisation for Economic Cooperation and Development (OECD) Model Tax Convention. The agreement covers taxes on income only; including income tax in Iran and corporate income tax, the special contribution for defence and capital gains tax in Cyprus.
The DTT provides for withholding tax on dividends, interest and royalty payments, at the following rates:
Dividends
The maximum rate of withholding tax that may be imposed on dividends paid to a resident of the other contracting state that is the beneficial owner of the dividends is 10%.
If the beneficial owner is a company (but not a partnership) which directly holds at least 25% of the capital of the company paying the dividends, the maximum rate is subsequently reduced to 5%.
Interest
The maximum rate of withholding tax which is effectively for Iran-resident companies paying dividends or interest to Cyprus residents, that may be imposed on interest paid to a resident of the other contracting state that is the beneficial owner of the interest is 5%.
Cyprus imposes no withholding taxes on dividends and interest.
Royalties
6% is the highest rate of withholding tax that may be imposed on royalties paid to a resident of the other contracting jurisdiction.
Capital gains
The following may be taxed in the contracting state in which they are located:
Gains derived by a resident of a contracting state from the disposal of immoveable property;
Shares that derive more than half of their value from immoveable property; and
Moveable property that is connected to a permanent establishment or a fixed base for performing independent personal services (including gains from the disposal of a permanent establishment or fixed base).
Timing
The Treaty will take effect in Cyprus on the 1st of January 2016 and in Iran on the following Farvardin 1 (the first day of the year according to Iran's official calendar, which occurs around March 21).
The conclusion of this double tax agreement with Iran provides opportunities for investments in Iran to be channelled via Cyprus.
The full text of the treaty can be found here.
