Benefits of the Cyprus and UAE Tax Treaty

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The UAE and Cyprus made the double tax treaty in February 2010 which came into operation in 2012. The accord is based on the convention rules for this type of agreements regulated by the Organization for Economic Cooperation and Development.

European countries benefit from the double tax treaty signed by the UAE and Cyprus as far as it opens new opportunities in terms of taxation system. There is a difference between considerations of a resident in both countries. As far as the UAE residents are determined under local laws, while in Cyprus people who live there permanently and pay taxes by this reason are considered to be residents. The criterion of Cyprus correlates with the model of the Organization for Economic Cooperation and Development but the UAE definition does not answer to its model.

Why this difference of notions is so favorable? According to the treaty, expats with a residence visa in the UAE can be defined as residents. The UAE double tax treaty does not say clear whether an individual, who cannot be liable for tax in the Emirates, is becoming responsible to pay taxes. As a result, there are no taxes. If a person is considered to be resident of Cyprus and the UAE according to the criteria mentioned, the treaty identifies country of residence where an individual lives permanently.

As for the residential status for companies, the UAE defines a company resident if it is established in accordance to the laws of this country and this regulation also considers offshore international companies performing in the Ras Al-Khaimah free trade zone. A company resident in Cyprus is an entity which has effective management in Cyprus. In case a company is defined as resident in the UAE and Cyprus, seat of its effective management is taken into consideration according to the treaty.

Consequently, it is more advantageous to use the company incorporated in the UAE jurisdiction rather than choose offshore business as far as the first business is under protection of treaty. In this case there will not be any issue with location of the effective management when the situation requires UAE tax resident.  In addition, the treaty determines that taxes on dividends or interest cannot be imposed by Cyprus on the enterprise which is defined as UAE resident following the terms of the mentioned treaty. Due to low business tax rates in Cyprus, this country is treated as the main getaway for companies to invest in Russia, the European Union and former USSR economies. There are no taxes imposed on dividends received from subsidiaries in listed countries and in case there are interest, dividends and royalties coming out, withholding tax is zero. It also should be noticed that there are not any determined pricing acts for transfer in Cyprus as there is only a general rule for companies to conclude transactions at ‘arm’s length prices’. This condition allows Cyprus company to apply as invoicing tool by getting EU VAT number in order to send invoices to customers in the European Union if they prefer invoices originated in the EU country.

Moreover, it is favorable to establish following entities in Cyprus: two types of funds (compliant mutual and private equity) and securities brokerage companies. The reason is large exempt options in Cyprus.

Contact OLIESERVE professionals to know more about the UAE and Cyprus companies and requirements for registering a company.