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HMRC internal manual

International Manual

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HM Revenue & Customs
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DT Agreements: Cyprus - Income from a UK source paid to a resident of Cyprus

Special Tax Benefits (Article 24A)

With effect from 1 January 2003 individuals resident in Cyprus are taxable in Cyprus ontheir worldwide income. Because the full amount of the pension is now ‘subject totax’ (see INTM332200) in Cyprus (see INTM348120), relief on a pension paid from the UK does not needto be limited to the amount of the income that is remitted to Cyprus.

Where any treaty claim or application for income from interest or royalties is only inrespect of income arising on or after 1 January 2003 it is sufficient for thecertification on claim form X/Individual to say that the person “is resident inCyprus for the purposes of Cyprus tax”. You should not ask for a X/Cyprus/slip to becompleted.

Article 24A of the DTA provides that treaty relief is not available in certain cases.Relief from UK tax is not available in respect of income from dividends, interest orroyalty payments where the person is entitled to any special tax benefit under certainsections of the Cyprus Income Tax Laws 1961 to 1977.

The provisions of the Cyprus tax code that are referred to in the DTA are

  • Section 5(2)(c)(i) (in so far as the tax charged is at a rate less than the rate prescribed for individuals)
  • Section 8(w)
  • Section 28A

However, where an individual is entitled to a special tax benefit under Section5(2)(c)(i) of the Cyprus Income Tax Laws 1961 to 1977, relief from UK tax can still beallowed for the first £1,500 sterling of the income arising in theUnited Kingdom in any year of assessment.

Individual

Where a claim is made that includes income from UK dividends (paid before 6 April1999), or for interest or royalties that were paid before 1 January 2003, you should ask(X/Cyprus/slip) if the person was entitled to any special tax benefits under Cyprus law.

Where an application for exemption from UK tax on pension income is received whichincludes payments that were made before 1 January 2003 you need to check that all of thepension was remitted to Cyprus and is ‘subject to tax’ in Cyprus.

In either case you should consider if a SA enquiry should be opened.

After 1 January 2003 individuals are taxable in Cyprus on their worldwide income. Becausethe full amount of the pension is now ‘subject to tax’ (see INTM332200) in Cyprus (see INTM348120),relief on a pension paid from the UK does not need to be limited to the amount of theincome that is remitted to Cyprus.

Where any treaty claim or application for income from interest or royalties is only inrespect of income arising after 1 January 2003 it is sufficient for the certification onclaim form X/Individual to say that the person “is resident in Cyprus for thepurposes of Cyprus tax”. You should not ask for a X/Cyprus/slip to be completed.

Company

Where a claim or application is made that includes income from dividends (paid before 6April 1999), or for interest or royalties that were paid before 1 January 2003, you shouldask (X/Cyprus/slip) if the person was entitled to any special tax benefits under Cypruslaw. You should consider if a SA enquiry should be opened.

With effect from 1 January 2003 there is no distinction under Cyprus tax law betweendomestic companies and “international business companies”. Where any treatyclaim or application is only in respect of income arising on or after 1 January 2003 thecertification on claim form X/Company should say that the company “is resident inCyprus for the purposes of Cyprus tax”. You should not ask for a X/Cyprus/slip to becompleted.

However, for the purposes of Article 24A of the Convention, the transitional rules atArticle 46 of the Cyprus tax law that apply to international business companies from 1January 2003 are considered to be “of an identical or substantially similarnature” to Section 28A of the earlier Cyprus tax laws. We do not have a way ofidentifying such companies. You should therefore ask all Cyprus companies to answer thefollowing question (in a SA enquiry letter if necessary)

“Has the company made an election under Article 46 of the Cyprus tax law to be taxedas an international business company?”

If the answer to this question is “No”, treaty relief may be allowed (subject tonormal examination procedures).

If the answer to the question is “Yes”, please refer the case to DTTA Section.