Cyprus-Netherlands double tax agreement brought into force

The double tax agreement (DTA) between Cyprus and the Netherlands entered into force on 30 June 2023 following completion of the ratification process by the Dutch government. The treaty, signed in 2021, is the first of its kind between the two countries and will apply from 1 January 2024.

The treaty generally follows the OECD model treaty and contains the standard provisions to avoid double taxation of income and capital. It will provide for full relief of withholding taxes on dividend payments to corporate investors, provided they hold directly at least 5% of the capital of the company paying the dividends throughout a 365-day period. The withholding tax rate for interest and royalties is 0%.

To implement the Base Erosion and Profit Shifting (BEPS) measures on dispute resolution and anti-tax avoidance, the treaty contains a Mutual Agreement Procedure (MAP) and introduces a principal purpose test (PPT), which allows tax authorities to disallow the application of treaty benefits if the application of those benefits was one of the principal purposes of an arrangement or transaction.

“This DTA will encourage cross-border investments between the Netherlands and Cyprus and will enable Dutch and Cypriot resident taxpayers to invest in both contracting states in a more tax-efficient way,” said George Ayiomamitis, Managing Director of Sovereign Trust (Cyprus) Ltd.

“This is the 67th DTA now signed by Cyprus and the government is committed to expanding this network further. New treaties with Australia, Oman, Hong Kong, Vietnam, Sri Lanka and Pakistan are currently in the process of being negotiated.”