The double taxation agreement, which was signed between Cyprus and Estonia on 15 October 2012, has taken another step towards ratification with its approval by the Estonian Parliament on 25 September 2013.
The Cyprus government has ratified the agreement in February 2013.
The agreement will enter into force on 1 January 2014 if both the governments have exchanged formal notifications that the relevant constitutional requirements have been complied with.
Until the agreement enters into force, the Cyprus tax authorities will allow unilateral relief for Estonian tax paid in accordance with their normal practice.
The new DTA agreement with Estonia follows the latest Organisation for Economic Cooperation and Development (OECD) Model Treaty, in this case the 2010 version.
According to the OECD treaty provisions, dividends, interest or royalties paid by acompany that is a resident of one country to a resident of the other will be taxable only in the latter country and capital gains derived by a resident of one country may be taxed in the country.
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In Cyprus, double taxation will be eliminated by allowing credit against Cyprus tax payable for any Estonian tax paid, while in Estonia, it will be eliminated by exemption from Estonian tax of any income which has been taxed in Cyprus.
This new Cyprus-Estonia DTA is the first treaty ever concluded between the two countries, since Estonia did not apply the 1982 double tax treaty between Cyprus and the former Soviet Union.