On May 13th 2015, Cyprus and Georgia signed a Double Tax Treaty (DTT). The two countries subsequently ratified the treaty during 2015 and it came into effect on January 1st 2016.
The new agreement closely follows the 2010 OECD treaty model, and its protocol clarifies the information exchange provisions. The details of the DTT are specified in the following paragraphs.
The treaty covers all taxes on income and capital levied by either state, including taxes on capital appreciation and on gains from alienation of movable or immovable property. In the case of Georgia, the taxes covered are: income tax, profit tax, and property tax. In the case of Cyprus, the taxes covered are: income tax, corporate income tax, SDC tax (Special Contribution of Defense), capital gains tax, and immovable property tax. The treaty will also apply to any identical or substantially similar taxes imposed in the future in addition to, or in place or existing taxes.
The definition of “resident in a contracting state” is aligned with the OECD treaty model.
Article 5 of the DTT, which deals with permanent establishment, also reproduces the provisions of the OECD model almost verbatim, However, paragraph 5 of Article 5 introduces a reservation. In the event that a person other than an agent of an independent status is acting on behalf of an enterprise in a contracting state and has, and habitually exercises, an authority to conclude contracts in the name of the enterprise, the enterprise concerned will be deemed to have a permanent establishment in that state in respect of any activities which that person undertakes for the enterprise, unless the activities concerned are limited to those that do not give rise to a permanent establishment, listed in the preceding paragraph of the article. This means that particular caution needs to be exercised regarding the issuing of general powers of attorney, so as not to risk inadvertently creating a permanent establishment, with potential adverse consequences.
The Cyprus-Georgia treaty relies on the provision that an oil or gas well, a quarry or any other place of extraction, exploration or exploitation of natural resources gives rise to a permanent establishment.
Income from immovable property:
Income from immovable property may be taxed in the territory of the state where it is situated, in accordance with the OECD treaty model.
The profits of an enterprise are taxable only by the contracting state in whose territory it is resident, unless it carries on business in the territory of the other state through a permanent establishment there, in which case the profit attributable to the permanent establishment may be taxed by the contracting state in whose territory it is located.
International shipping and transport:
Profits of an enterprise from the operation of ships or aircraft in international traffic are taxable only by the contracting state in whose territory the enterprise is resident.
Dividends paid by a resident of one contracting state to a resident of the other contracting state are
taxable only by the second contracting state, with the usual reservation regarding dividends arising from a permanent establishment in the first contracting state. There is no stipulation regarding beneficial ownership.
Interest arising in one contracting state and paid to a resident of the other is taxable only in the
contracting state in which the recipient is resident, subject to the usual reservations regarding interest arising from a permanent establishment in the first contracting state, and any excess above the amount that would be payable on an arm's length basis.
Royalties arising in one contracting state and paid to a resident of the other are taxable only by the
contracting state in whose territory the recipient is resident, provided that the recipient is the beneficial owner.
Gains derived by a resident of one contracting state from the alienation of immovable property situated in the territory of the other, or from the disposal of immovable or movable property associated with a permanent establishment situated in the other, may be taxed by the contracting state in whose territory the immovable property or the permanent establishment is situated.
Exchange Of Information:
The exchange of information article reproduces Article 26 of the OECD Model Convention verbatim.