Ukraine: New Double Taxation Treaty

(Expected to enter into force as from January 1, 2014)


 New Treaty (Cyprus-Ukraine)   Old Treaty (Cyprus-USSR)
Withholding Tax for Dividends[1]:1)     5% (where the beneficial owner of the income is resident in the other contracting state and holds at least 20% of the company paying the dividend or has invested at least €100,000 in it);2)     15% – for other cases; Withholding Tax for Dividends:0 %
Withholding Tax for InterestMaximum rate is 2%. Withholding Tax for Interest0%
Withholding Tax for Royalties

1) 5% on royalties in respect of copyright for scientific works, patents, trademarks etc.2) 10% on royalties in respect of literary or artistic works, such as films.
Withholding Tax for Royalties0%

[1] The recipient of the dividend will be able to offset any withholding tax paid in Ukraine against its corporate income tax liability in Cyprus

It was impossible to keep zero withholding tax on dividends, interest and loyalties, since the USSR-Cyprus Treaty was highly criticised by populist politicians in Ukraine, claiming that it was too generous and was being abused by the Ukrainian ‘businessmen’ to evade their obligations rather than to legitimately mitigate tax burden. So, many times Ukrainian politicians were trying to vote for the denunciation of this Treaty (last time it happened on June 4th, 2013).

Nevertheless, the new Treaty continues favourable regime, especially in the light of the fact that the provision regarding capital gains on the disposal of shares in property-rich companies was not amended. According to the new agreement, gains on the disposal of shares, including shares in the companies, owning real estate, remain taxable only in the country of residence of the owner. Since Cyprus imposes no tax on disposals of shares, except and to the extent that the gain is derived from the real estate in Cyprus, Cyprus companies, holding real estate in Ukraine effectively allow for the property to be disposed of tax free.

Note: As of 20 June 2013 the Parliament of Ukraine has failed to secure the required number of votes to ratify a convention between the governments of Ukraine and Cyprus to avoid double taxation.

Therefore, the convention of the former Soviet Union and Cyprus on the avoidance of double taxation of 29 October 1982 stays in force – for the time being anyway!