The UK and Cyprus on Wednesday agreed an amendment to the 2018 Double Taxation Convention in response to concerns by British nationals about one of its provisions in respect of government service pensions.
The amendment will allow individuals to choose which basis of taxation they want to apply to their government service pensions. This choice can be made from 1 January 2019 until 31 December 2024.
British High Commissioner Stephen Lillie and Finance Minister Harris Georgiades signed the amended protocol in Nicosia.
Speaking at the signing, British High Commissioner Stephen Lillie said: “The new UK-Cyprus Double Taxation Agreement is important because of our already strong trading links and close people-to-people links, which we hope to grow further in the future.”
He said the UK Government has “listened” to the concerns raised with us about one particular provision of the Convention.
The pensions provision in the new Double Taxation Agreement with Cyprus mirrors the treatment in the majority of the UK’s agreements.
“However, we recognise the impact the change in the way government service pensions are taxed will have on a small group of Cyprus residents.
The changes we have agreed with the Cyprus government will therefore introduce a period of transition. That will enable existing pensioners to elect to remain within current arrangements for a period of five years, until December 2024,” said Lille.
Georgiades said that the latest amendment of the Agreement created a framework that facilitates economic cooperation, fiscal stability and transparency in the relations of the two countries.
He said, the first such agreement was signed in 1974, it was revised in 1980 and again in early 2018. He also noted that there was a large Cypriot community in the UK and an equally large community of UK expats in Cyprus.
“The United Kingdom was and remains for us a strategic partner, a country with which we have relationships that could not really have been closer,” said Georgiades.
“This is also true in the field of the economy and such an agreement, which must constantly be adjusted and modernized, serves to further expand the already very close economic and political relations,” he added.
UK Government service pensions are currently taxable only in the country in which the recipient is resident, but under the 2018 Convention they will be taxable only in the country which pays the pension.
UK Revenues and Customs has published guidance showing how pensioners wishing to remain within the current arrangements can make a decision.
That guidance is available at bit.ly/2GbpHeN.
The election will apply in the calendar year in which it is made and for future years until 2024.
The transition period is for a maximum of five years to 31 December 2024.
If an election is not made, then the arrangements under the 2018 Double Taxation Convention will apply, in which case government service pensions will be taxable only in the UK from 1 January 2019.