Following its emergence as an independent state, Slovenia adopted the double taxation agreement dated 29 June 1985 between the former Yugoslavia and Cyprus. A new double taxation agreement has recently been agreed between Cyprus and Slovenia, replacing the former agreement of 1985 between the former Yugoslavia and Cyprus which was applicable. The new treaty was signed on 12 October 2010 and will take effect once formally ratified by both countries, which is expected to be sometime in 2011. Until such formal ratification, the existing 1985 treaty should continue to be effective.
Withholding tax rates
The new treaty provides for a maximum rate of withholding tax of 5% on dividends, interest and royalties. Although this represents a reduction from the current rate of 10% as stated within the Yugoslavia – Cyprus treaty, it is unlikely to have any material effect due to the fact that both Slovenia and Cyprus have fully implemented both the EU Parent-Subsidiary Directive and the Interest and Royalties Directive, resulting in a 0% withholding tax rate in most cases (subject to various provisions of the respective Directives).
Capital gains on disposal of shares in “property-rich” companies
The new treaty provides that capital gains on the disposal of shares in property-rich companies (ie, companies which derive the majority of their value from immovable property situated in one of the contracting states) may be taxed in the state in which the immovable property is situated. The new treaty restricts this provision to the disposal of shares and does not make mention of disposal of “other instruments” (as worded in other treaties based on the OECD Model Tax Convention).
Mutual Assistance and Exchange of Information
The articles on mutual agreement procedures and exchange of information have been aligned with the equivalent provisions of the current OECD model convention and the obligations and powers of the contracting states have been further clarified.
Withholding tax rates
The new treaty provides for a maximum rate of withholding tax of 5% on dividends, interest and royalties. Although this represents a reduction from the current rate of 10% as stated within the Yugoslavia – Cyprus treaty, it is unlikely to have any material effect due to the fact that both Slovenia and Cyprus have fully implemented both the EU Parent-Subsidiary Directive and the Interest and Royalties Directive, resulting in a 0% withholding tax rate in most cases (subject to various provisions of the respective Directives).
Capital gains on disposal of shares in “property-rich” companies
The new treaty provides that capital gains on the disposal of shares in property-rich companies (ie, companies which derive the majority of their value from immovable property situated in one of the contracting states) may be taxed in the state in which the immovable property is situated. The new treaty restricts this provision to the disposal of shares and does not make mention of disposal of “other instruments” (as worded in other treaties based on the OECD Model Tax Convention).
Mutual Assistance and Exchange of Information
The articles on mutual agreement procedures and exchange of information have been aligned with the equivalent provisions of the current OECD model convention and the obligations and powers of the contracting states have been further clarified.
