New Agreement The new double tax agreement signed
between Cyprus and the UAE (United Arab Emirates) came into force from 1st
January 2014. For the greater part, the agreement issues the corresponding
OECD’s provision on the recent Model Tax Convention. The principal that
originates from the OECD model include:
Appraise of the agreement
The agreement is applicant to persons with
resident status of one or both contracting states and to taxes on the income
imposed on behalf of a contracting state or of the state’s political
sub-divisions or local authorities. In UAE’s case, the taxes are inclusive of
income tax and corporate tax.www.dubaibusinesskey.com
In Cyprus’s, the agreement addresses
corporate income tax, income tax, SDC tax (Special Contribution for Defense) as
well as capital gains tax.
Residence
The provisions on residence are a
replicate of the OECD mode agreement, with the determination of residence being
done in accordance to the place where effective management is undertaken from,
in addition to specifying that companies that are incorporated in the UAE are
defined as residents there, adding that ‘resident’ extends to all central or
local government bodies or institutions of either contracting state.
Permanent establishment
Article 5 replicates the OECD model, but
clearly states that an offshore drilling site can or may be constituted as a
permanent establishment. Project activities should have duration of 1 year (12
months as provided for in the OECD model) for constituting a permanent
establishment.
Hydrocarbons
The agreement provides that the freedom of
contracting states to apply their domestic legislation in respect to the
taxation of income and profits sourced from hydrocarbons as well as associated
activities is not interfered with by the agreement.
Business profits
Article 8 highlights that the
determination of profits should be done through a formula and that there should
be consistency in the mode of determination from year to year). Otherwise, the
article is pursuant to the OECD model. corresponding OECD model’s provisions on
taxation of profits as well as profits determination of a permanent establishment
(as long as
Air transport and shipping
Article 9 of the agreement between the
Cyprus and the UAE states that the taxation of such profits can only be done in
the contracting state of the business enterprise concerned, whose definition is
provided in Article 4 as the state (contracting state) is resident. Therefore,
as highlighted above, companies that are incorporated in the UAE are taken to
be residents there, and as such the profits of a UAE –incorporated company will
only be taxable in the UAE irrespective of the locus of its management and
control.
Dividends, royalties and interest
Dividends, royalties and interest are only
taxable in the state (contracting state) of residence of the recipient. There
is no provision that the recipient of the income should also be the beneficial
owner of that income. However, any additional interest or loyalties exceeding
the normal commercial amount paid between associated persons shall not be
exempted from taxation in the contracting state from which they are sourced
from.
The only exception allowed to the general
rule is in instances where the beneficial owner is a resident in one of the
contracting states but carries out business through a permanent establishment
in the other contracting state from where the income is sourced from.
Capital gains
Article 14 provides that any gains made
from the alienation of immobile property located in a contracting state by the
resident of the other contracting state, or from the alienation of movable
property that forms part of a permanent establishment owned by an enterprise in
a contracting state may be taxed in the state of location of the property
concerned.
Gains sourced by an enterprise resident in
a contracting state from the alienation of ships or aircrafts alongside ancillary
equipment, are only taxable in that contracting state.
The taxation of all other gains is only
done in the alienator’s state of residence.
Information exchange
Basically the information exchange clause
replicates the verbatim of the OECD model.
However, a protocol provided for the in
the agreement provides for several safeguards against the misuse of abuse of
exchange of information by providing that contracting states that request for
information to follow the specified procedures for purposes of demonstrating
the relevance of the requested information. Particularly, any request for
information exchange should be accompanied by:
· The identity of the person whose
information is sought;
· A statement highlighting the
information being sort with the inclusion of its nature and the preferred form
in which it’s being requested;
· Tax purposes for the information
being sought;
· Proof that the requested
information is in the possession of the requested state or is being controlled
by a person in the jurisdiction of the contracted state;
· To the known extent, name and
address of any person believed to be holding the requested information;
· A statement that:
· The request falls within the law as
well as administrative practices of the contracting state requesting the
information;
· A statement providing that the
contracting state requesting for the information has exhausted all available
means in its disposure to obtain the information.
Enforcement & Termination
As stated earlier, the enforcement of the
agreement took place as from 1st January 2014. The agreement is
expected to remain in force until it is terminated by any of the contracting
states. If a notice of termination is given before 30th June, the agreement will become
ineffective at the end of the year that the notice is issued. However, the
agreement has to be effective for not less than 5 years before notice is given.
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