Cyprus signs Double Taxation Treaty with Saudi Arabia

Riyadh – Cyprus and Saudi Arabia have signed an agreement for the avoidance of double taxation with respect to taxes on income and for the prevention of tax evasion.

The agreement, which was signed on 3 January 2018 during the official visit of the President of Cyprus to Saudi Arabia, is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital and provides for the exchange of financial and other information in accordance with the relevant Article of the Model Convention.

The treaty is expected to come into force as from 1 January 2019 or once formal ratification procedures have been completed.

The treaty applies to taxes on income as well as on gains from alienation of movable or immovable property. In the case of Saudi Arabia, the treaty covers the Zakat tax, a religious obligation for all Muslims who meet the necessary criteria of wealth, and income tax (including the natural gas investment tax), whereas, in the case of Cyprus, it covers corporate and personal income tax, defence tax and capital gains tax.

Dividends

The treaty provides for withholding taxes on dividends at the following rates:

  • There is no withholding tax in cases where there is at least 25% participation by a company that is tax resident in the receiving jurisdiction.
  • In all other cases the withholding tax is 5%.

Interest

There is no withholding tax on interest, as long as the recipient of the interest is the beneficial owner of the income.

Royalties

The treaty provides for withholding taxes on royalties at the following rates (as long as the recipient of the royalties is the beneficial owner of the income):

  • 5% in cases where the royalties are paid for the use of, or the right to use, industrial, commercial or scientific equipment
  • in all other cases the withholding tax is 8%

Capital gains

The treaty provides that gains arising from the disposal of shares of a substantial participation in the capital of a company which is resident of a Contracting State may be taxed in that Contracting State.

A person is considered to have a substantial participation when this participation is at least 25% of the capital of that company, at any time within twelve months prior to the disposal of the shares.