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Expat UK Pensions Affected by New Cyprus – UK DTA

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The Republic of Cyprus and the UK signed a new Double Taxation Treaty (DTA) on March 22, 2018, which is part of the general updating of the existing 1974 DTA between the two countries in order to bring the agreement in line with established international norms.

The new DTA will enter into force when both countries have ratified it and exchanged diplomatic notes, which is most likely to take place at the beginning of the UK tax year 2019-2020. The UK Parliament debated the Statutory Instrument that gives effect to the DTA on June 18.

Whereas the previous DTA allowed for UK government pensions to be taxed in Cyprus at a lower rate of 5%, the new agreement sees all UK government pensions taxed at source (in the UK), and the individual will pay UK standard tax rates and be eligible for tax free allowances. As such, the new DTA may affect the pensions of UK nationals residing on the island.

The change follows the approach of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and on Capital (the Model), and mirrors the UK’s modern DTAs with other countries.