The British High Commission and HM Revenue and Customs (HMRC) held two briefing sessions in Limassol and Pissouri this week on forthcoming changes to UK tax legislation which may affect UK nationals living in Cyprus.
The meetings focussed principally on the recent signature of a new Double Taxation Treaty (DTA) between the UK and the Republic of Cyprus, with a lot of interest from participants in how changes within the treaty may affect UK nationals living in Cyprus, particularly those in receipt of Government service pensions.
Officials explained that the changes made to Double Taxation Agreement (DTA) are part of the general updating of the existing 1974 DTA between the UK and Cyprus to bring it in line with established international norms. In common with most countries, the starting point for all of the UK’s modern DTAs is the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and on Capital (the Model). The pension provisions in the new DTA follow the approach that the Model advocates.
The provisions relating to Government service pensions have been a feature of that Model since 1977. They recognise the distinction between private sector pensions and publicly-funded pensions paid by a Government to its former employees. It is an internationally accepted standard. In effect, the new DTA will tax all government pensions at source (in the UK) and the individual will pay UK standard tax rates, and be eligible for tax free allowances. The previous DTA allowed for UK government pensions to be taxed in Cyprus at a lower rate of 5%.
The new DTA was signed by representatives of the UK and Cyprus on 22 March 2018. It will enter into force when both the UK and Cyprus have ratified it and exchanged diplomatic notes. This is likely to happen at the beginning of UK tax year 2019-2020. The UK Parliament debated the Statutory Instrument that gives effect to the DTA on Monday 18th June.