Cyprus – USA Transport Tax Agreement (1988)

Transportation Tax Agreement and Supplementary Notes (1988)

This Treaty was signed on July 8, 1988 and entered into force on July 8, 1988.

The American Embassy to the Ministry of Foreign Affairs of Cyprus

Embassy of the United States of America

No. 189

The Embassy of the United States of America presents its compliments to the Ministry of Foreign Affairs and has the honor to propose that the two Governments conclude an Agreement to exempt from income tax on a reciprocal basis, income derived by residents of the other country from the international operation of ships and aircraft. The terms of the Agreement are as follows:

• The Government of the United States of America, in accordance with Section 872(B) and 883(A) of the Internal Revenue Code, agrees to exempt from tax gross income derived from the international operation of ships and aircraft by individuals who are residents of Cyprus (other than U.S. citizens) and by corporations organized in Cyprus. This exemption is granted on the basis of equivalent exemptions granted by Cyprus to citizens of the United States (who are not residents of Cyprus) and to corporations organized in the United States (and not taxed by Cyprus on the basis of residence).

• In the case of a Cyprus corporation, the exemption shall apply only if the corporation meets either of the following conditions:

1) More than fifty percent of the value of the corporation’s stock is owned, directly or indirectly, by individuals who are residents of Cyprus or of another country which grants a reciprocal exemption to U.S. citizens and corporations; or

2) The corporation’s stock is primarily and regularly traded on an established securities market in Cyprus, or is wholly owned by a corporation whose stock is so traded and which is also organized in Cyprus.

For purposes of sub-paragraph one, the Government of Cyprus will be treated as an individual resident of Cyprus. For purposes of applying the fifty percent test to a Cyprus corporation, if the corporation is a U.S. controlled foreign corporation, as defined in Section 957(A) of the Internal Revenue Code, the U.S. shareholders are treated as residents of Cyprus. For purposes of sub-paragraph one, stock of a corporation owned by another corporation, partnership, trust or estate shall be treated as owned proportionately by the beneficial owners.

Gross income includes all income derived from the international operation of ships or aircraft, including income from the rental of ships or aircraft on a full (time or voyage) basis and income from the rental of containers and related equipment which is incidental to the international operation of ships or aircraft. It also includes income from the rental on a bareboat basis of ships and aircraft used for international transport.

The Embassy considers that this Note, together with the Ministry’s reply Note confirming that the Government of Cyprus agrees to these terms, constitutes an Agreement between the two Governments. A resident of Cyprus who derives income from the international operation of ships or aircraft may choose to apply to such income either the provisions of this agreement or of the Convention between the United States of America and the Republic of Cyprus for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed on March 19, 1984. This Agreement shall enter into force on the date of the Ministry’s reply Note and shall have effect with respect to taxable years beginning on or after January 1, 1987.

Either Government may terminate this Agreement by giving written notice of termination through diplomatic channels.

The Embassy of the United States of America avails itself of this opportunity to renew to the Ministry of Foreign Affairs of the Republic of Cyprus the assurances of its highest consideration.

Embassy of the United States of America
Nicosia, June 21, 1988

The Ministry of Foreign Affairs of Cyprus to the American Embassy

Republic of Cyprus Ministry of Foreign Affairs

No.
418/87
850/69

NOTE VERBALE

The Ministry of Foreign Affairs of the Republic of Cyprus presents its compliments to the Embassy of the United States of America and has the honour to acknowledge receipt of the latter’s Note Verbale No. 189 of June 21, 1988 proposing the terms of a reciprocal exemption from income tax derived from the international operation of ships and aircraft.

The Government of the Republic of Cyprus agrees to exempt from tax gross income derived from the international operations of ships or aircraft by U.S. citizens (who are not residents of Cyprus) and by corporations organized in the United States (which are not taxed by Cyprus on the basis of residence).

In the case of a U.S. corporation, the exemption shall apply only if the corporation meets either of the following conditions:

1. More than fifty percent of the value of a corporation’s stock is owned, directly or indirectly, by individuals who are citizens of the United States or are residents of another country which grants a reciprocal exemption to Cyprus residents and corporations; or

2. The corporation’s stock is primarily and regularly traded on an established securities market in the United States, or is wholly owned by a corporation whose stock is so traded and which is also organized in the United States.

Gross income includes all income derived from the international operation of ships or aircraft, including income from the rental of ships or aircraft on a full (time or voyage) basis and income from the rental containers and related equipment which is incidental to the international operation of ships or aircraft. It also includes income from the rental on a bareboat basis of ships and aircraft used for international transport.

The Ministry of Foreign Affairs of the Republic of Cyprus is pleased to confirm that the Embassy’s Note and this reply Note constitute an Agreement between the two Governments. A U.S. citizen or corporation which derives income from the international operation of ships and aircraft may choose to apply to such income either the provisions of this Agreement or of the Convention between the United States of America and the Republic of Cyprus for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Property, signed on March 19, 1984. This Agreement shall enter into force on today’s date and shall have effect with respect to taxable years beginning on or after January 1, 1987.

Either government may terminate this agreement by giving written notice of termination through diplomatic channels.

The Ministry of Foreign Affairs of the Republic of Cyprus avails itself of this opportunity to renew to the Embassy of the United States of America the assurances of its highest consideration.

Nicosia, 8 July, 1988.
To the
Embassy of the
United States of America, Nicosia.

ANNEX A PARTICULARS OF INSTITUTIONAL INCOME

“Institutional income,” as used in this Tax Reimbursement Agreement, includes only the following particulars of employee compensation:

• Basic salary
• Post adjustment
• Salary increases, including merit increments
• Repatriation grant
• Cash in lieu of accrued annual leave
• Language allowance
• Allowance for special duties
• Overtime
• Night differential
• Installation allowance
• Education grant and related travel
• Dependency allowance
• Non-resident allowance
• Termination indemnity
• Removal expenses
• Home leave travel
• Assignment allowance
• Reimbursement of United States federal, state, or local income tax payments and United States self- employment tax payments on institutional income