T&L D-briefs - July 2026

In this issue, we:

• a tax treaty update in relation to Hong Kong, Kyrgyzstan and Sweden 
• the European Commission’s “Omnibus” tax simplification package 
• the European Commission proposal on DAC recast
• the Cyprus Registrar’s announcement on Public Country by Country reporting

International Tax Developments 

Tax Treaty signed with Hong Kong

On 12 June 2026, Cyprus signed a tax treaty with Hong Kong. 

The tax treaty is based on the OECD Model Convention, and its main provisions are briefly outlined below:

Permanent Establishment (PE):

• in addition to the fixed place of business PE and agent PE concepts, which are generally aligned with the OECD Model, the tax treaty also has PE threshold for building; site/construction/installation projects (if they last for at least 12 months);
• the treaty contains various provisions aimed at preventing artificial avoidance of PE status in line with BEPS Action 7 recommendations.

Withholding Tax (WHT) on Dividends/Interest/Royalties:

The treaty provides for 0% WHT on dividends/interest and limits WHT on royalties to 3%.

Capital gains: further to the provisions allocating taxing rights on capital gains, which are generally aligned with the OECD Model, the tax treaty contains specifically:

• a clause that allows the source country to tax capital gains from shares in companies whose value is primarily derived from real estate situated in that country (i.e. property-rich companies);
• the above clause does not apply to gains derived:
  • from the alienation of shares in companies listed on an approved stock exchange,or
  • in the framework of a reorganisation, a merger, a scission or a similar operation.

Offshore activities:

• the treaty provides that offshore activities related to the exploration or exploitation of natural resources are deemed to constitute a PE.
• however,this rule does not apply if the activities are short-term, lasting 30 days or less within any twelve-month period.

Limitation of Benefits:

• the treaty contains a Principal Purpose Test (PPT) in line with BEPS Action 6 recommendations to combat treaty abuse;
• furthermore, the treaty contains a preamble in line with OECD Model Convention (2017) referring to the fact that the intention of the agreement is the elimination of double taxation with respect to taxes on income, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Agreement for the indirect benefit of residents of third jurisdictions).
  

The treaty will enter into force once both Cyprus and Hong Kong exchange notifications that their formal ratification procedures have been completed. The provisions of the treaty will have effect in Hong Kong on or after 1 April in the calendar year following that in which the Agreement enters into force; and in Cyprus on or after 1 January following the date the treaty enters into force.

The conclusion of the treaty is expected to enhance co-operation between the two countries and further develop their economic relationship.

Please also refer to this Deloitte publication on this matter.

Tax Treaty signed with Kyrgyzstan

On 8 June 2026, Cyprus signed a tax treaty with Kyrgyzstan.

While the tax treaty is based on the provisions of the OECD and UN Model Convention, there are some important deviations as well. The main provisions of the treaty are briefly outlined below:

Permanent Establishment (PE): in addition to the fixed place of business PE and agent PE concepts, which are generally aligned with the OECD Model, the tax treaty also contains:

• services PE threshold (of services that are provided for a period or periods exceeding in the aggregate 6 months within any 12-month period);
• threshold for building site/construction/installation projects (if they last for at least 12 months).

Withholding Tax (WHT) on Dividends/Interest/Royalties:
 
Dividends:

• the treaty limits WHT on dividends at 7% in case the recipient suffices a beneficial owner status and holds directly at least 25% in the capital of the company paying the dividends;
• 10% WHT limitation applies in all other cases.

Interest:

• 0% WHT applies if interest is paid to the Government or the National Bank;
• the treaty limits WHT on interest at 8% in all other cases.

Royalties:

• the treaty limits WHT on royalties at 8%.
  
  

Capital gains: further to the provisions allocating taxing rights on capital gains, which are generally aligned with the OECD Model, the tax treaty contains specifically:

• a clause that allows the source country to tax capital gains from shares in companies whose value is primarily (i.e. more than 50%) derived from real estate situated in that country (i.e. property-rich companies);
• the above clause does not apply to gains derived from the alienation of shares in companies listed on an approved stock exchange.

Offshore activities:

• the treaty provides that offshore activities related to the exploration or exploitation of natural resources are deemed to constitute a PE.
• however,this rule does not apply if the activities are short-term, lasting 30days or less within any twelve-month period.

Limitation of Benefits:

• the treaty contains a Principal Purpose Test (PPT) in line with BEPS Action 6 recommendations to combat treaty abuse;
  
• furthermore, the treaty contains a preamble in line with OECD Model Convention (2017) referring to the fact that the intention of agreement is the elimination of double taxation with respect to taxes on income, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Agreement for the indirect benefit of residents of third jurisdictions).

The treaty will enter into force once both Cyprus and Kyrgyzstan exchange notifications that their formal ratification procedures have been completed. The provisions of the treaty will have effect on or after 1 January following the date the treaty enters into force.

The conclusion of the treaty is expected to enhance co-operation between the two countries and further develop their economic relationship.

The Protocol for the Avoidance of Double Taxation between Cyprus and Sweden signed on 3 July 2026 is published in the Cyprus Official Gazette

The Protocol updates the 1988 Convention between the countries. One of the central objectives of this amendment is to introduce certain BEPS standards. This enhancement is in line with the Cyprus policy objective to strengthen its position as an international business hub by promoting tax transparency, aligning with international tax standards, and attracting investments.

The Protocol in particular includes the following:

• The preamble which emphasizes the commitment to prevent tax avoidance and promote tax co-operation;
• The revised Article 23 (Mutual agreement procedure), which reflects BEPS Action 14 recommendations, regarding dispute resolution mechanism;
• The updated Article 24 (Exchange of information), which mandates the exchange of relevant tax information between the competent authorities, respecting confidentiality and excluding the need for administrative measures against either state's laws, while not restricting the exchange due to lack of domestic interest or information held by financial entities;
• The new Article 25A (Principal Purpose Test), which in line with BEPS Action 6, denies tax treaty benefits for income if a primary purpose of an arrangement or transaction was to obtain such benefits, unless aligning with the treaty's intended objectives.

On 10 July 2026, the text of the amending protocol, was published in Issue No. 4307 of Appendix 7 of Cyprus's Official Gazette. With this publication, Cyprus has completed the necessary domestic procedures for the implementation of this protocol into domestic law. The Protocol enters into force after 30 days after the exchange of official notifications, applying to taxes withheld at source and other income taxes from January 1 of the year following its entry into force. 

European Commission proposes landmark tax simplification package (“The Omnibus”) to streamline compliance and boost competitiveness

On 24 June 2026, the European Commission published a tax omnibus proposal aimed at simplifying the EU direct tax framework to reduce complexity for cross-border businesses by introducing amendments to directives like ATAD, PSD, and IRD. This includes updates such as mandatory interest limitation thresholds, R&D allowances in ATAD, expanded participation exemption in PSD, and removal of shareholding thresholds in IRD, alongside enhanced tax resolution, merger directives, and the FASTER directive for streamlined withholding tax processes, all to be potentially adopted by the end of 2027 for implementation in member states.

Please go through this link for more details.

European Commission proposes DAC recast

On 24 June 2026, the European Commission proposed a recast of the EU directive on administrative cooperation (DAC) to consolidate the framework and simplify reporting obligations while maintaining protections against tax fraud and evasion. The proposal aims for streamlined processes, like a centralized TIN verification tool, broader automatic information exchange and integrated country-by-country reporting, targeting tax simplification by the end of the Irish Presidency in 2026. Updated rules will enhance information exchanges, reduce reporting requirements for low-value transactions on digital platforms, and refine mandatory disclosure allowances, aligning DAC with anti-money laundering updates and aiming to conclude discrepancies preventing effective taxation and compliance.

Please go through this link for more details.

Local Tax Developments

Announcement by Cyprus Registrar in relation to submission of Public CbCR Reports in Cyprus

On 19 June 2026 the Department of Registrar of Companies and Intellectual Property announced that MNEs subject to Cyprus Public Country-by-Country Reporting (PCbCR) are required to submit the Income Tax Information Report for financial years starting on or after 22 June 2024. The submission is carried out through the Department's cashier upon payment of a submission fee of EUR 20. A shift to an electronic submission system is expected in the first quarter of 2027, with an official announcement to follow. The European Commission provides a voluntary tool to assist in report generation, accessible here.

As a reminder, on 6 December 2024 Cyprus amended its Companies Law to incorporate the EU PCbCR Directive, requiring tax-related public reporting for certain large multinational enterprises (MNEs) with respect to financial years beginning on or after 22 June 2024. It is noted that the PCbCR compliance framework is different from the existing CbCR one regarding a few important aspects, such as the information that must be disclosed, the MNEs’ entities/branches that must report, and the compliance requirements in different EU Member States. A summary of the key Cyprus Public CbCR rules is available in our previous publication on 16 December 2024.

For your further information, please also find Deloitte brochure on this topic available via this link: EU Public country-by-country reporting - April 2026. 

Archive

The previous T&L D-briefs are available below.

T&L D-brief May 2026

T&L D-brief March 2026

T&L D-brief January 2026

T&L D-brief November 2025

T&L D-brief September 2025

T&L D-brief July 2025

T&L D-brief May 2025

Contact Us

For general queries and comments please contact us via email on cyprusTLdbriefs@deloitte.com.

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