Cyprus's double tax agreement with the UK is one of its most important, owing to London's predominance as a global financial centre and the strong historic links between the two countries. On March 22 2018, representatives of the two countries signed a new double taxation agreement which, once it has been ratified by both of them, will replace the existing agreement, which dates back to 1974.
The existing double taxation agreement is one of Cyprus's oldest agreements that is still in force. While most of the main provisions of the new agreement are the same in substance and effect as the corresponding provisions of the 1974 agreement, the new text, which is based on the 2014 OECD Model Convention, brings the language of the agreement completely up to date and introduces modern-day standards on exchange of tax information and base erosion and profit shifting. The new agreement also introduces detailed provisions to deal with taxation of offshore hydrocarbon exploration and exploitation and related activities.
The new agreement will enter into force once both countries have completed their respective domestic ratification procedures, and will take effect at the beginning of the two countries' following respective tax years. Although the changes it introduces will have little direct effect on the tax liability of most taxpayers when it enters into effect, their importance should not be underestimated. The modernisation of the provisions, particularly those relating to permanent establishments, the emphasis on beneficial ownership and arm's-length pricing, and the introduction of up-to-date information exchange and anti-abuse provisions, align the agreement with present-day best practice and provide clarity and certainty, which it is hoped will facilitate investment and commerce in the post-Brexit era.