Tax expert Marios Yenagrites analyses the recent Cyprus-Croatia Double Tax Treaty

A treaty aimed at eliminating double taxation between Cyprus and Croatia was signed on 17 October 2023 and will take effect following the completion of Croatia's ratification process.

Below, Marios Yenagrites, Tax Manager for Limassol-based Totalserve, puts down the actual numbers behind the Treaty and offers some clarity about its impact:

“This treaty is anticipated to bolster trade and economic relations between the two countries, particularly following Croatia's accession to the European Union” Marios Yenagrites explains, and, “offers investors simplicity and assurance regarding the tax treatment of their income and capital gains”.

The Cyprus-Croatia Double Tax Treaty numbers

Regarding dividends, a 5% withholding tax will be imposed if the recipient qualifies as the beneficial owner of the dividend income.

For interest income, a 0% withholding tax applies to the beneficial owner if the interest is paid in specific circumstances, such as in connection with the sale on credit of certain equipment or merchandise, or on a bank-granted loan. Otherwise, a 5% withholding tax is applied.

Royalties will incur a 5% withholding tax if the recipient is considered the beneficial owner.

It is worth noting that according to Cypriot domestic legislation, no withholding tax is levied on interest or dividends paid to non-resident individuals or corporations, irrespective of any existing double tax treaties. Similarly, no withholding tax is applied to royalties stemming from sources outside Cyprus.

In the case of capital gains, if a resident of either country derives gains from the sale of shares that primarily derive their value from immovable property situated in the other country, such gains may be taxed in the country where the immovable property is located. However, exemptions apply for certain scenarios, including listed shares on approved stock exchanges, gains from corporate reorganisations, or when the seller is a recognised pension fund.

Additionally, the Treaty includes a Principal Purpose Test which provides for the denial of treaty benefits if it is reasonably concluded that obtaining these benefits was one of the principal purposes behind a specific arrangement or transaction.

Marios Yenagrites completed his analysis by saying “Such new Double Tax Treaties are much welcome, since they replace outdated treaties where global commerce, trading, transactions and companies were very different”.