The New Double Taxation Agreement Between Cyprus And Jersey

On July 11, 2016 Cyprus and Jersey signed a new double taxation agreement (DTA). The agreement is the first comprehensive DTA between the two, and will come into force once it has been ratified in accordance with their domestic legal procedures. The 2004 agreement on taxation of savings income between Cyprus and Jersey will continue in force, but the DTA will be more beneficial to taxpayers once it takes effect.

The new agreement closely follows the 2010 OECD Model Convention, with only minor modifications, and the Protocol to the agreement clarifies the information exchange provisions. The key provisions of the DTA and Protocol are analysed in the following paragraphs.

Taxes covered

The agreement covers all taxes on income levied by either party or by any of a party's subdivisions or local authorities, including taxes on capital appreciation and on gains from the alienation of movable or immovable property. The specific taxes to which it applies are, in the case of Jersey, income tax; and, in the case of Cyprus, income tax, corporate income tax, Special Contribution for Defence (commonly referred to as SDC tax), capital gains tax and immovable property tax.

The agreement will also apply to any identical or substantially similar taxes that are imposed in future in addition to, or in place of, existing taxes.

Residence

Article 4 of the DTA reproduces the provisions of the OECD Model regarding residence verbatim, with the "tie-break" criteria for determining residence for individuals who are resident in both countries being permanent home and centre of vital interests, country of habitual residence and nationality, in descending order. If none of these is decisive, residence is to be settled by mutual agreement between the two countries' tax authorities.

For legal persons the place of residence is the place in which the effective management of the enterprise is situated.

Permanent establishment

Article 5 of the DTA, which deals with permanent establishment, also reproduces the provisions of the OECD Model verbatim, with the same list of ancillary activities that prima facie do not give rise to a permanent establishment as appears in the OECD Model, including storage and display of goods, maintenance of stocks for processing by a third party, a purchasing or information-gathering facility or a facility for preparatory or auxiliary purposes.

A building site, a construction, assembly or installation project or a supervisory or consultancy activity connected with it will be deemed to be a permanent establishment if it lasts for more than twelve months.

If an enterprise has a representative in the territory of a party that has, and habitually exercises, authority to conclude contracts in the name of the enterprise, the...