Cyprus approved an income tax treaty with Jordan on December 31, 2021.
This is the first treaty between these two countries, and it was signed on December 17, 2021. It is based on both the OECD Model Tax Convention on Income and Capital and the UN Model Double Taxation Convention. The Base Erosion and Profit Shifting (BEPS) basic requirements are also included in the pact.
The treaty will enter into force the next year after Jordan completes its ratification procedure. If the ratification procedure is completed by the end of 2022, the treaty is projected to take effect on January 1, 2023.
Withholding tax provisions
The treaty provisions include the following withholding tax measures:
- Dividends: A 5% withholding tax applies if the recipient/beneficial owner of the dividend is a company (other than a partnership) holding directly at least 10% of the paying company’s capital. A 10% withholding tax applies in all other cases.
- Interest: A 0% withholding tax applies if the recipient/beneficial owner of the interest is the government or a political subdivision or a local authority or the national bank. A 5% withholding tax applies in all other cases.
- Royalties or fees for technical services: A 7% withholding tax applies to the recipient/beneficial owner of the royalty / fee for technical services.
- Capital gains: Gains derived by a resident of a Contracting State from the alienation of shares in a company deriving more than 50% of their value directly from immovable property situated in the other Contracting State, and only those gains attributable to the immovable property, may be taxed in that other State. An exemption applies for the alienation of shares listed on an approved stock exchange. Gains derived by a resident of a Contracting State from the alienation of shares in a company deriving their value or greater part of their value directly or indirectly from exploration or exploitation rights; or from property situated in the other Contracting State and used in the exploration or exploitation of the seabed or subsoil or their natural resources situated in the other State; or from such rights and such property taken together, may be taxed in that other State.
- Limitation on benefits: A benefit under the treaty will not be granted in respect of an item of income, if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes (a “principal purpose test”) of the arrangement or transaction that resulted directly or indirectly in that benefit.
For the entire agreement, read more KPMG’s January 2022 report.