The Cyprus Kazakhstan Double Tax Treaty has entered into force as of the 17th of January 2020. As a result, the Treaty is now in force and shall have an effect as of the 1st of January 2021. As of the day of writing this publication Cyprus is not mentioned as a country that has an agreement for the avoidance of double taxation with Kazakhstan. Revisit this site for updates.
Below is a summary of the main provisions of the Cyprus Kazakhstan Double Tax Treaty.
Cyprus Kazakhstan Double Tax Treaty – Highlights
Cyprus Kazakhstan Double Tax Treaty -Dividends
* 5% withholding on gross dividends if the beneficial owner is a company which holds directly at least 10% of the dividend-paying company
^15% withholding in all other cases
Cyprus Kazakhstan Double Tax Treaty – Interest
10% withholding on the gross interest income
10% withholding on the gross royalty income so long as the recipient of the royalties is the beneficial owner of the income.
Gains derived by the sale of shares or similar interests of a company whose value, directly or indirectly is derived from immovable property situated in the other state shall be taxed in the state the real estate is situated. In other words if you sell shares of a Cyprus company owning Kazak real estate, Kazakstan retains the right to tax any capital gains derived by the sale of the real estate.
The above does not apply to gains derived from the alienation of shares of companies listed on a stock exchange and any other disposal of shares is taxed in the State of the seller.
What structures could be established from the Cyprus Kazakhstan Double Tax Treaty?
The treaty aims to specify the tax treatment of cross-border transactions and strengthen the ties between the two nations. With sufficient clarity and certainty as to the manner in which taxes will be applied an increased level of comfort can be achieved when considering undertaking an investment into Kazakhstan via a Cyprus Company or vice versa.
As it is very well known Cyprus business invest in a plethora of international sectors. With this in mind, a typical private equity top holding structure would benefit significantly the routing of investments via Cyprus.
This is assuming the local rules and regulations are followed and that the Cypriot entity is not incorporated for the sole benefit of utilizing the treaty since the DTT incorporates the OECD/G20 Base Erosion and Profit Shifting (BEPS) project Action 6 Principal Purpose Test (PPT), which is a minimum standard under the BEPS project.
The principal purpose test provides that a double tax treaty benefit shall not be granted, under conditions, if obtaining that benefit was one of the principal purposes of an arrangement or transaction. This measure is designed to tackle “treaty shopping” and puts a strong emphasis on ensuring that operations are supported by appropriate substance and reflect a principal commercial rationale.
Furthermore, it seems that Kazahkstan imposes a 5% penalty on dividends paid to a tax haven jurisdiction. Cyprus held a spot in that list in 2009. But with the treaty having effect then Cyprus would surely be an equivalent country.
With the introduction of the Notional Interest Deduction Regime (NID) Cypriot operating entities can deduct a certain amount of profits. This is typically achieved by utilising Cyprus entities as financing vehicles. Furthermore, the possibility of applying for foreign tax credits locally the resulting effect would be a tax-efficient financing vehicle.
Royalty Receiving Companies
With the new Deputy Ministry of Innovation and Digital Policy in Cyprus the future of Cyprus as an innovative hub is streamlined and now has a new head. The technology and innovation generated from Cyprus might be applied in Kazakhstan now with fewer barriers and tax certainty.