Double Tax Treaty between Cyprus and Luxembourg

A DTT between Cyprus and Luxembourg was signed on 8.5.2017. The DTT will come into effect from 01.01 of the year following the year in which all legal formalities to bring the treaty into force are finalised.

The DTT provides for 0% withholding tax on dividends if the beneficial owner of the dividends is a company (other than a partnership) that directly holds at least 10% of the capital of the payer company. In other cases a 5% withholding tax applies.
For interest and royalties, the DTT provides for a 0% withholding tax.

Regarding capital gains, under the DTT, Cyprus retains the exclusive taxing rights on disposals of shares in Luxembourg companies except in cases where more than 50% of the value of the shares is derived directly from immovable property situated in Luxembourg.

The DTT integrates the Base Erosion and Profit Shifting (BEPS) project Action 6 report on 'Principal Purpose Test' (PPT).  The PPT provides that a DTT benefit shall not be granted, under some 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 to ensure that operations are supported by proper substance and reflect a principal commercial rationale.

For collective investment vehicles, the accompanying Protocol to the DTT provides that, under some conditions, exempt CIVs are to be considered as residents of a contracting state if they are considered as residents by the local law of that state, and as the beneficial owners of the income the CIV receives.