The Minister of Finance of Ukraine signed “Bilateral Double Taxation Avoidance Treaty” (hereinafter – the Treaty) with the government of the Republic of Cyprus on November 8, 2012.

The Treaty abolished zero taxation rate of what is called passive income. In particular dividends are proposed to be taxed by 5% and 15% rate and royalty payments – by 5% and 10% rate. Upon payments to a resident of Cyprus the withholding tax shall be deducted in Ukraine at the rate of 2%.

It should be noted that the Treaty still has to pass ratification procedure at the Verkhovna Rada of Ukraine. This Treaty shall replace the Agreement between the Government of the USSR and Government of Cyprus dated 1983, which should be denounced by the Verkhovna Rada of Ukraine.

Thus, the Treaty entry into force is expected at the earliest in the beginning of 2014.