The income tax treaty between Cyprus and Jordan entered into force on 11 April 2022. The treaty, signed 17 December 2021, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Cyprus income tax, corporate income tax, the special contribution for the Defence of the Republic, and capital gains tax. It covers Jordanian income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

• Dividends - 5% if the beneficial owner is a company that directly owns at least 10% of the paying company's capital; otherwise, 10%
• Interest - 5%
• Royalties - 7%
• Fees for technical services as consideration for managerial, technical, or consultancy services, including the provision of services of technical or other personnel - 7%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State, which:
  • applies only to the gains attributable to the immovable property; and
  • does not apply to gains derived from the alienation of shares listed on an approved stock exchange.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Activities in the Exclusive Economic Zone or on the Continental Shelf

Article 22 (Activities in the Exclusive Economic Zone or on the Continental Shelf) provides that a permanent establishment will be deemed constituted when an enterprise of a Contracting State carries on activities in the exclusive economic zone or on the continental shelf in the other Contracting State in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in that other State, if such activities are carried on for a period exceeding 30 days in the aggregate in any 12-month period. Substantially similar activities carried on by an associated enterprise in a Contracting State are considered in determining if the 30-day threshold is exceeded.

Article 22 also provides that gains derived by a resident of a Contracting State may be taxed by the other State if derived from the alienation of:

• Exploration or exploitation rights;
• Property situated in the other Contracting State and used in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in that other State; or
• Shares deriving their value or the greater part of their value directly or indirectly from such rights or such property or from such rights and such property taken together.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entitlement to Benefits

Article 29 (Entitlement to Benefits) provides that a benefit under the treaty shall 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 of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Effective Date

The treaty applies from 1 January 2023.