On the 30/12/2015, The Government of the Republic of Cyprus and the Government of the Federal Democratic Republic of Ethiopia have signed the Agreement on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income.
The Agreement shall apply to any person who is either a resident of one or both of the above Contracting States.
The main provision of the Agreement are amongst others, the following:
i. Article 2 provides that the provisions of the Convention apply to taxes on income imposed on behalf of a Contracting States, etc.
As taxes on income are considered all taxes imposed on total income or on elements of income (i.e taxes on gains).
The existing taxes to which this Convention applies are:
IN THE CASE OF CYPRUS:
1. the income tax
2. the corporate income tax
3. the special contribution for the Defense of the Republic and
4. the Capital Gains tax
IN THE CASE OF ETHIOPIA:
1. the tax on income and profit and
2. the tax on income from mining, petroleum and agricultural activities.
ii. Pursuant to Article 10 dividends paid by a Company, which is a resident of one Contracting State to a resident of the other Contracting State may be taxed in that other State.
However, such dividends may also be taxed in the Contracting State, according to the laws of that State, of which the company paying the dividends is a resident of, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax charged shall not exceed 5 per cent of the gross amount of the dividends. This paragraph shall not affect the taxation of the Company in respect of the profits out of which the dividends are paid.
iii. Interestsarising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State according to Article 11.
However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 5 per cent of the gross amount of the interest.
iv. As it emerges from Article 12 royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State. Moreover, Royalty payments by Ethiopia will be subject to a maximum withholding tax of 5% provided that the recipient is the beneficial owner of the royalty.
The above-mentioned paragraphs apply, except as otherwise specifically provided in the Agreement.
The Article 24 refers to elimination of Double Taxation as follows:
Where a resident of a Contracting State receives income, which in accordance with the provisions of the Agreement, may be taxed in the other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in that other State.
Such deduction shall not exceed that part of the income tax as estimated before the deduction is given.