Double Tax Treaty between Cyprus and Saudi Arabia

On 3 January 2018, Cyprus signed double tax treaty with Saudi Arabia for the avoidance of double taxation between Cyprus and Saudi Arabia.

The new tax treaty is based on the OECD (Organisation for Economic Co-operation and Development) Model Tax Convention framework and its main provisions are briefly outlined below:

Dividends

There is no withholding tax (WHT) on dividends, if the beneficial owner (BO) is a company which holds directly or indirectly at least 25% of the capital of the company paying the dividends.

In all other cases the withholding tax shall not exceed 5%.

Interest

No WHT as long as the recipient of the interest is the BO of the income.

Royalties

If the recipient of the royalties is the beneficial owner of the income, the treaty provides for withholding taxes on royalties at the following rates:

  • 5% of the gross amount of royalties in cases where they 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% of the gross amount of royalties.

Capital Gains

The treaty provides that gains arising from the disposal of shares 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.

The conclusion of the treaty is expected to enhance cooperation in tax matters between the two States and further develop their economic relationship.

The treaty will enter into force once both Cyprus and Saudi Arabia exchange notifications that their formal ratification procedures have been completed. The treaty is expected to be ratified and come into force as from 1 January 2019.


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