Cyprus-France Double Tax Treaty

The updated Double Tax Treaty (DTT) between Cyprus and France, signed on 11 December 2023, represents a development in the tax relationship between the two countries. This new agreement supersedes the previous treaty from 1981, reflecting contemporary international tax standards and addressing the challenges of the modern economic environment.

Key Provisions of the New Cyprus-France DTT

  • Entry into Force: The treaty is set to enter into force upon the exchange of ratification instruments between Cyprus and France. Its provisions will become effective from 1 January of the year following its entry into force​​​​.
  • Alignment with International Standards: The treaty is grounded in the latest OECD Model Tax Convention, incorporating the Base Erosion and Profit Shifting (BEPS) minimum standards. This alignment ensures adherence to contemporary international rules and aims at preventing tax evasion and avoidance while facilitating economic collaboration between Cyprus and France​​​​.
  • Taxation of Dividends, Interest, and Royalties:
    • Dividends are subject to a 0% withholding tax if the beneficial owner is a company holding directly at least 5% of the capital of the dividend-paying company for a 365-day period that includes the payment day. A 15% rate applies in other cases​​.
    • Interest and royalties are subjected to 0% and 5% withholding tax rates, respectively, promoting cross-border investments and the sharing of intellectual property​​​​.
  • Capital Gains: The treaty provisions allow taxation in the other contracting state for capital gains derived from the alienation of shares (or comparable interests) in property-rich companies, under specific conditions​​​​.

Economic Implications and Further Enhancements

This modernised treaty framework is designed to eliminate double taxation on income and capital gains, thereby encouraging investment and financial flows between Cyprus and France. It reflects a mutual commitment to transparency and cooperation in tax matters, which is crucial for combating tax evasion and ensuring tax compliance.

Moreover, the treaty introduces mechanisms such as the mutual agreement procedure and arbitration, enhancing dispute resolution and providing greater certainty for businesses and individuals engaged in cross-border activities between the two nations. The incorporation of the principal purpose test further aligns the treaty with international efforts to combat tax avoidance strategies that exploit treaty benefits.

The updated Cyprus-France DTT modernises the tax relations between the two countries to reflect current economic and international tax practices. It is a step forward in promoting a stable and transparent fiscal environment, fostering investment, and preventing tax avoidance. As the treaty is implemented and its effects become observable, businesses and individuals engaged in cross-border transactions between Cyprus and France will need to adjust their strategies to comply with the new regulations and take advantage of the opportunities presented by this updated framework.