The double tax treaty (DTT) between Cyprus and Estonia signed on October 15, 2012, was ratified in February 2013 by the Cyprus government and approved by the Estonian Parliament on September 25, 2013.

The treaty will enter into force when the Cyprus and Estonian governments have exchanged formal notifications that the relevant constitutional requirements have been complied with. Its provisions will take effect from January 1, 2014, assuming that all final steps are completed by the end of 2013.

Like all other DTT’s, the new treaty with Estonia follows the latest Organisation for Economic Cooperation and Development (OECD) Model Treaty.

The DTT’s main provisions are as follows:

  • Dividends, interest or royalties paid by a company that is a resident of one country to a resident of the other will be taxable only in the latter country.
  • Capital gains derived by a resident of one country may be taxed in the country in which the property concerned is situated where it relates to:
    • the disposal of immovable property situated in the other country;
    • the disposal of shares or comparable interests deriving more than 50% of their value from immovable property situated in the other country;
    • movable property forming part of the business property of a permanent establishment which an enterprise of one country has in the other.
  • Double taxation will be eliminated in Cyprus by allowing credit against Cyprus tax payable for any Estonian tax paid.
  • Permission of use of information received by a contracting state for purposes beyond the assessment of tax, subject to this being legal under the laws of both states and subject to the consent of the competent authority of the state providing the information.

This is the first DTT signed between Estonia and Cyprus, being a good opportunity for business and investment expansion between the two states and given Estonia’s progressive economy with many corporations and businesses in the technology sector.