A new comprehensive tax treaty signed by Luxembourg and Cyprus entered into force on July 18, the Luxembourg government has announced.
The treaty, signed by representatives of the two countries in Nicosia on May 8, 2017, will enter into effect on January 1, 2018, the government said.
Under the treaty, interest and royalties are exempted from withholding tax. Withholding tax on dividends is also zero if the beneficial owner is a company that holds at least 10 percent of the company paying the dividends. In other cases, withholding tax on dividends is 5 percent.
The treaty also takes into account minium standards agreed to by nations in the 2015 OECD/G20 base erosion profit shifting (BEPS) plan, adding a clarification in the preamble to the treaty that the treaty should not be used for tax treaty shopping. It also adds a “principal purposes” test for obtaining tax treaty benefits, in accord with the BEPS plan agreements.
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