Ukraine and Cyprus has signed the new tax agreement

During the official visit of Victor Yanukovich to the republic of Cyprus several bilateral documents were signed, in particular in such important fields as commercial maritime shipping, air communication, agriculture, investment cooperation, business activity and in double taxation.

Ivan Movlyak, the associated partner of the International Law Offices Interlegal, has made a comment on the situation.

First information on clauses of the new Convention on avoiding double taxation appeared today, on 09.11.2012, in mass media with the reference to the source in the Cabinet of Ministers of Ukraine. It is the following:

The convention instead of zero taxation of dividends provides introduction of 5% rate if the owner possesses no less than 20% of the Company’s capital or has invested no less that 100 thousand Euros in acquisition of shares. The royalty will be imposed by 10% tax (now it is 0%), income of active debt - 2% (0%). All other incomes (of property alienation, hire work, pension, director fees)can be taxable according to the law of the contract party.

How will it influence on the current structures which use Cyprus?

If it happens indeed, it should not make a large influence on business structures which use Cyprus:

1. Tax on dividend repatriation in the volume of 5% is a typical rate used by Ukraine regarding to significant number of the countries. So it will not be the worse situation for Cyprus, even the equal as compared to others;
2. The similar situation concerns the royalty in the volume of 10%;
3. Tax on interest repatriation in the volume of 2%. Will it be much or not? Figures say that for each $10 000 of the interests paid $200 (!) will have to be paid to the budget of Ukraine. I do not believe that it will be a great impact on the necessity to change jurisdiction of the managing company.
4. On the basis of the abovementioned information 0% on selling the corporate rights remain unchanged, which will also preserve the positions of Cyprus as holding jurisdiction.

Anyway we need to wait with the final comments until the official text becomes available for public.

Ivan Movlyak, the associated partner of the International Law Offices Interlegal, has made a comment on the situation concerning new agreements with Cyprus.