On December 30, 2015 the Government of the Republic of Cyprus and the Government of the Federal Democratic Republic of Ethiopia signed a Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Hereafter: the DTA).

Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.

 

Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.

 

Taxes covered

Based on Article 2, Paragraph 3 of the DTA (“TAXES COVERED”), the existing taxes to which the DTA shall apply are:

a)     In the case of Cyprus:

(i)     the income tax;

(ii)    the corporate income tax;

(iii)   the special contribution for the Defense of the Republic; and

(iv)  the capital gains tax

b)     In the case of Ethiopia:

(i)     the tax on income and profit; and

(ii)    the tax on income from mining, petroleum and agricultural activities.

 

Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of this Convention in addition to, or in place of, the existing taxes.

 

Permanent establishment

Article 5, Paragraph 3 of the DTA (“PERMANENT ESTABLISHMENT”) arranges that a building site or construction or installation project constitutes a permanent establishment only if lasts more than six months.

 

Article 5, Paragraph 6 of the DTA subsequently arranges that notwithstanding the preceding provisions of Article 5, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom Article 5, Paragraph 7 of the DTA applies.

 

Immovable property

Article 6, Paragraph 1 of the DTA (“INCOME FROM IMMOVABLE PROPERTY”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

 

Article 6, Paragraph 2 of the DTA arranges that the term "immovable property" shall have the meaning, which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property.

 

With respect to immovable property Article 14, Paragraph 1 of the DTA (“CAPITAL GAINS”) arranges that Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

 

Associated enterprises

Article 9, Paragraph 2 of the DTA (“ASSOCIATED ENTERPRISES”) contains a so-called appropriate adjustment clause.

 

Dividends

If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the DTA (“DIVIDENDS”) maximizes the withholding tax a Source State is allowed to withhold over dividend distributions to 5 per cent of the gross amount of the dividends.

 

Article 10, Paragraph 3 of the DTA arranges that the term "dividends" as used in this Article means income from shares, including mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

 

Interest

If the beneficial owner of the interest is a resident of the other Contracting State, Article 11, Paragraph 2 of the DTA (“INTEREST”) maximizes the withholding tax that a Source State is a allowed to withhold over interest to 5 per cent of the gross amount of the interest.

 

 

Royalties

If the beneficial owner of the royalties is a resident of the other Contracting State, Article 12, Paragraph 2 of the DTA (“ROYALTIES”) maximizes the withholding tax that a Source State is a allowed to withhold over royalties to 5 per cent of the gross amount of the royalties.

 

Other

Furthermore the DTA contains a.o. provisions regarding Offshore Activities (Article 13), a Mutual Agreement Procedure (Article 26) and regarding the Exchange of Information (Article 27).

 

Click here to be forwarded to the text of the DTA as available on the website of the Cypriot Ministry of Finance.

 

Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.

 

 

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