The Double Tax Treaty (DDT) was signed on 24 May 2016 and will take effect from 1 January 2017. The DDT was signed by Cyprus Finance Minister, Harris Georgiades and Latvia`s Economics Minister Dana Reizniece-Ozola.
The taxes which were covered in the Treaty are the Latvian enterprise income tax and personal income tax; and the Cyprus income tax, corporate income tax, capital gains tax and special contribution for the Defence of the Republic (SDC tax).
The treaty provides 0% withholding tax rates on dividends, interest and royalties of the payer is a company that is a resident of a Contracting State and the beneficial owner of the income is a company that is a resident of the other Contracting State.
Regarding other cases (like non company-to-company payments), the treaty provides for withholding tax rates of 10% on dividends and interest and 5% on royalties. Moreover, as both countries are EU members, the Interest and Royalties Directive (2003/49/EC) and the Parent Subsidiary Directive (90/435/EEC) will be relevant to any tax planning.
As to the Capital Gains Taxes, gains from the disposal or immovable property may be now taxed in the country where the immovable property is situated. Moreover, gains from the disposal of shares, deriving more than 50% of their value, directly or indirectly, from immovable property, may be taxed in the country, in which the immovable property is situated.
The Treaty is based on the Organisation for Economic Co-operation and Development (OECD) Model Convention for the Avoidance of Double Taxation on Income and on Capital, and it is compliant with its` exchange of information provisions (see Article 26 of the OECD Model Convention)
The DDT was the first attempt in relation to the Treaties for the Avoidance of Double Taxation. Therefore, it will contribute to the further development of the trade and economic relations between Cyprus and Latvia, as well as with other countries.
Considering all mentioned above, this treaty will provide an amount of advantages to businesses and individuals who have decided to establish their business in Cyprus. The directives 2003/49/EC and 90/435/EEC which were mentioned above, will help to eliminate withholding taxes in relation to payments on dividends, royalties and interest between EU Group Companies. In addition, the EU Merger Directive (90/434/EEC) will be used in order to eliminate the tax effects of EU Group reorganisations.