Cyprus and Saudi Arabia Double Tax Treaty
Cyprus and Saudi Arabia have entered into an Income Tax Treaty aimed at preventing double taxation and tax evasion on income. This agreement is expected to take effect from January 1, 2019, pending the ratification process in both countries. The treaty further strengthens Cyprus's extensive tax treaty network while fostering economic and commercial ties with Saudi Arabia.
Permanent Establishment (PE)
Article 5 outlines the criteria for establishing a permanent establishment (PE), which determines where business profits can be taxed. A PE is formed if a construction site, assembly, or similar project lasts more than six months. The "service PE" rule applies when services like consultancy are provided for more than six months within a 12-month period. Offshore activities related to seabed exploration also create a PE.
Dividends
No withholding tax applies on dividends if the recipient company holds at least 25% of the paying company’s capital. In all other cases, a 5% withholding tax is applied. Cyprus does not impose a domestic withholding tax on dividends.
Interest and Royalties
No withholding tax is levied on interest if the recipient is the beneficial owner. Royalties are subject to a maximum of 5% withholding tax for industrial, commercial, or scientific equipment use and 8% for other royalties.
Capital Gains
The Cyprus and Saudi Arabia Double Tax Treaty stipulates that capital gains from the sale of shares with at least 25% ownership are taxed in the country where the company is based, except for publicly listed shares. Additionally, capital gains from rights related to the exploration of natural resources may be taxed where the resources are located.
Other Income and Information Exchange
Income not covered by other articles is only taxable in the recipient's country of residence. Income from mineral resources may be taxed in the country where the resources are situated. The treaty also includes provisions for information exchange between authorities, aligned with the OECD's 2017 model.
Cyrpus and Saudi Arabia Double Tax Treaty ensures clarity and reduced tax burdens for businesses operating across both jurisdictions.