Cyprus: Income tax treaty with Jordan

Cyprus on 31 December 2021 ratified an income tax treaty with Jordan.

This treaty—the first between these two countries—was signed on 17 December 2021 and is based on both the OECD Model Tax Convention on Income and Capital and the United Nations Model Double Taxation Convention.  The treaty also incorporates the base erosion and profit shifting (BEPS) minimum standards.

The treaty will be in force in the year following the year in which the ratification process is completed by Jordan. Assuming the ratification process is completed during 2022, the treaty would be expected to be in effect as from 1 January 2023.

The treaty provisions include the following withholding tax measures:

• Dividends: A 5% withholding tax applies if the recipient/beneficial owner of the dividend is a company (other than a partnership) holding directly at least 10% of the paying company’s capital. A 10% withholding tax applies in all other cases. 
• Interest: A 0% withholding tax applies if the recipient/beneficial owner of the interest is the government or a political subdivision or a local authority or the national bank. A 5% withholding tax applies in all other cases.
• Royalties or fees for technical services: A 7% withholding tax applies to the recipient/beneficial owner of the royalty / fee for technical services. 
• Capital gains: Gains derived by a resident of a Contracting State from the alienation of shares in a company deriving more than 50% of their value directly from immovable property situated in the other Contracting State, and only those gains attributable to the immovable property, may be taxed in that other State. An exemption applies for the alienation of shares listed on an approved stock exchange. Gains derived by a resident of a Contracting State from the alienation of shares in a company deriving their value or greater part of their value directly or indirectly from exploration or exploitation rights; or from property situated in the other Contracting State and used in the exploration or exploitation of the seabed or subsoil or their natural resources situated in the other State; or from such rights and such property taken together, may be taxed in that other State.  
• Limitation on benefits: A benefit under the treaty will not be granted in respect of an item of income, if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes (a “principal purpose test”) of the arrangement or transaction that resulted directly or indirectly in that benefit. 

Read a January 2022 report prepared by the KPMG member firm in Cyprus