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New trading relationship: Double Tax Treaty between Luxembourg and Cyprus

On the 8th May 2018, the finance ministers of Luxembourg and Cyprus signed the Double Taxation Avoidance Agreement between the two countries. The new Agreement is expected to come into force as from 01/01/2018 with the aim to strengthen and expand the commercial ties between the two Member States.

The Agreement echoes all the required international standards as provided by the Base Erosion and Profit Shifting (“BEP”) recommendations in respect of the exchange of information, providing thus greater level of legal certainty and predictability.

The Agreement provides, inter alia, for the following:

  • Dividends: 0% withholding tax if there is at least 10% participation by a tax resident company and 5% in all other cases

  • Interest: 0% withholding tax on interest

  • Royalties: 0% withholding tax on royalties, if the recipient of the royalties is the beneficial owner of the income.

Profits arising from the sale of shares of immovable property are taxed in the country where the immovable property is located.

Please note that the full text of the treaty has not been released yet.

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