TaxLegi 10.8.2023

Introduction

The House of Representatives has recently voted for an amendment in the Stamp Duty Law (L77(I)/2023) which was published in the official Gazette of the Republic on 21 July 2023.

The amending Law aims to exempt from stamp duty various documents relating to transactions for aircrafts registered in the Cyprus Aircraft Register.

Detailed Discussion

The amended law applies to several types of documents including mortgage agreements and any other documents concerning the mortgage of an aircraft registered in the Cyprus Aircraft Registry, or any share or items or interest in aircrafts.

This exemption includes loan agreements, guarantee agreements, or any other documents creating contractual obligations secured by a mortgage on an aircraft registered in the Cyprus Aircraft Register, as well as any modifications or supplementary agreements.

The exemption further includes documents establishing encumbrances, liens, or any other form of payment security or performance obligation required under the terms of the mentioned loan or guarantee agreements as well as any modification to such documents.

Furthermore, the amended law also extends the stamp duty exemption to sale agreements and other agreements associated with the purchase or sale of an aircraft registered in the Cyprus Aircraft Register as well as of any share or items or interest in aircrafts.

Additionally, lease agreements for aircrafts already registered in the Cyprus Aircraft Register, or for aircrafts registered within sixty days from the date of signing the lease agreement, are also exempt from stamp duty. Moreover, any guarantee agreements linked to these lease agreements are also exempt from stamp duty.

Contacts:

• Marios Iacovou, Senior Manager, Global Compliance and Reporting

On 8 August 2023 Russia published the Presidential Decree No. 585 "On the Suspension of the Validity of Certain Provisions of International
Treaties of the Russian Federation on Taxation Issues" (‘the Decree’). The Decree suspended certain main articles of 38 double tax treaties
(‘DTT’) concluded by Russia with so-called "unfriendly" states, including Cyprus.

The Decree was issued as a response measure to the "unfriendly" (towards Russia) acts of foreign states, e.g. the inclusion of Russia in the
EU "black list" (jurisdictions that do not cooperate with the EU on tax issues). Following this inclusion, the Russian Ministry of Finance and the
Ministry of Foreign Affairs proposed to the Russian President to issue the Decree. Effective DTT suspension date

The suspension of the DTT comes into force immediately after the publication of the Decree, i.e. the new tax regime applies to income paid
starting from 8 August 2023.

Suspended DTT articles The suspension concerns the DTT articles allocating the rights of the
Contracting States (e.g. Cyprus and Russia) to tax all types of income and capital. Thus, it will not be possible to apply reduced tax withholding
rates and tax exemption in respect of passive income, income from employment, professional and other similar activities.
Specifically for the Cyprus-Russia DTT the Articles suspended are the following: Articles 5-22, 24, 27 and 29.

DTTs mentioned in the Decree are generally identical (based on the OECD Model Tax Convention), and therefore the consequences of the suspension of the DTT provisions are
largely the same for all the countries concerned. The exception is the DTT between Russia and the USA which is not based on the OECD Model Tax Convention.

DTT Articles not suspended Only auxiliary DTT provisions should remain applicable: general definitions, tax residency
rules, mechanisms for eliminating double taxation, rules on the exchange of information and certain others.

Nevertheless, the application of these auxiliary articles in practice will also depend on the position of the states with which Russia has suspended the DTT articles. It cannot be
excluded that certain states may decide to suspend the application of the DTT in full, following the refusal of the Russian Federation to apply certain provisions of the DTTs.

Possible development scenarios The suspension of the DTT main provisions may be the first step towards the termination of
the DTT (as was the case with the DTT with Latvia) by Russia. However, it is possible that the DTT suspension will remain purely temporary measure that will be cancelled when
international relationships of Russia with "unfriendly" states are normalized.

Nevertheless, it cannot be excluded that the respective foreign states will announce a mirror "suspension" of the DTT with Russia as a temporary measure.

EY Cyprus is at your disposal for any information or clarifications you may require.
 

Contacts:

• Philippos Raptopoulos, Partner – Direct Tax
• Olga Chervinskaya, Senior Manager – Direct Tax