In summary

On 21 December 2021, amendments to the Income Tax Law and Special Defence Contribution Law were published in the Cyprus Government Gazette (“Law amendments”) for the introduction of legislative defensive tax measures that will apply in Cyprus in relation to jurisdictions included on the EU list of non-cooperative jurisdictions for tax purposes (commonly referred to as “EU blacklisted jurisdictions”).

In accordance with the Law amendments, Cyprus will apply withholding tax (WHT) on certain outbound payments of dividends, interest and royalties, if the recipient is a company in an EU blacklisted jurisdiction, as follows:

> Dividends at the rate of 17%

> Interest at the rate of 30%

> Royalties at the rate of 10%

The Law amendment entered into force on 31 December 2022.

EU list of non-cooperative jurisdictions for tax purposes

Following the latest update of the EU blacklist, effective as from 12 October 2021, the EU blacklist currently includes 9 jurisdictions, as follows:

American Samoa	Palau	Trinidad and Tobago
Fiji	Panama	U.S. Virgin Islands
Guam	Samoa	Vanu atu

 

Companies in scope of the defensive tax measures

In accordance with the Law amendments the defensive tax measures shall apply to companies that are:

> resident in an EU blacklisted jurisdiction; or

> incorporated / registered in such jurisdiction;
and

> not a tax resident in another jurisdiction that is not listed in the EU blacklist.
(“companies in scope”)

 

WHT on outbound payments of dividends

Currently, no WHT is levied on outbound dividend payments to non-Cyprus tax resident shareholders (companies or individuals).

The Law amendments provide that a WHT at the rate of 17% shall apply, in accordance with Special Defence Contribution Law, on dividends received by a company in scope from a Cyprus resident company in which it participates directly either with more than 50% in the voting rights, or more than 50% in the capital or is entitled to receive more than 50% of the profits.

An exemption applies for outbound payments of dividends received by a company in scope in respect of titles listed on any recognized stock exchange.

In addition, an anti-abuse provision has been introduced in case the Cyprus resident paying company is held directly by more than one company in scope.

WHT on outbound payments of interest

Currently, no WHT is levied on outbound interest payments to non-Cyprus tax resident shareholders (companies or individuals).

The Law amendments provide that WHT at the rate of 30% shall apply, in accordance with the Special Defence Contribution Law, on interest received or credited to a company in scope from a Cyprus resident company.

An exemption applies for outbound payments of interest received or credited to a company is scope in respect of titles listed on any recognized stock exchange.

 

WHT on outbound payments of royalties

Currently, WHT at the rate of 10% is levied on outbound royalty payments to foreign tax residents (companies or individuals), who are not engaged in any business in Cyprus, for royalty income derived in Cyprus on rights granted for use in Cyprus.

The Law amendments enhance the existing provisions above and provide that a WHT at the rate of 10% shall also apply, in accordance with Income Tax Law, on royalty income derived in Cyprus by a company in scope for rights granted for use outside Cyprus.

December 2021

In summary

On 21 December 2021, an amendment to the Income Tax Law was published in the Cyprus Government Gazette (“Law amendment”) whereby an additional corporate tax residency test is introduced based on incorporation. This additional test aims to capture Cyprus incorporated / registered companies that are not tax resident in any other jurisdiction (commonly referred to as “stateless companies”).

The Law amendment will enter into force on 31 December 2022.

Existing corporate tax residency rules based on management and control

In accordance with the Income Tax Law, a company is considered to be a tax resident of Cyprus if its management and control is exercised in Cyprus.

The existing corporate tax residency test will continue to apply, so that a company that has its management and control in Cyprus will continue to be considered as a tax resident of Cyprus i.e. its tax residency status will not be affected by the Law amendment.

 

Additional corporate tax residency test based on incorporation

In accordance with the Law amendment the definition of a “resident in the Republic” is enhanced so that a company established or registered under any applicable Law in the Republic, which has its management and control exercised outside the Republic, is considered to be a resident of the Republic, unless such company is a tax resident in any other jurisdiction.

This means that Cyprus incorporated / registered companies, with (i) management and control exercised outside Cyprus; AND (ii) not tax resident in any other jurisdiction will now be considered as Cyprus tax residents and as such, taxed in Cyprus on their worldwide income.

IMMIGRATION MEMO

February 2022

Revised policy for employment of third-country nationals

The Council of Ministers has approved new incentives for attracting companies to operate in Cyprus and also enable those already operating in Cyprus to expand further their activities in the country. As from 1/1/2022, a “Business Facilitation Unit” (BFU) has been introduced by the Ministry of Energy, Commerce and Industry, which is being used as a single point of contact between potentially eligible companies and the relevant Authorities in Cyprus.

The purpose of the BFU is the fast and efficient processing of requests received from eligible companies. One of the responsibilities of the BFU is the facilitation for the issuance of work permits in Cyprus for third-country nationals. More specifically, eligible companies can register with the BFU, as “foreign companies”, in a fast and efficient manner. Once this registration is completed, the relevant companies may proceed with the submission of applications for the issuance of work permits, in respect of highly skilled employees from third countries.

The main benefit of registering with the BFU as a foreign company, is that such a company would be able to employ highly skilled third-country nationals through a fast-track process, by applying for the issuance of work permits, directly to the Civil Registry and Migration Department (CRMD). Through the fast-track process, companies can avoid the lengthy procedures undertaken by the Department of Labor for granting approvals of employment for third-country nationals, as per the current policy that is in place.

Eligibility criteria for registration with the BFU as a foreign company

1. Eligible businesses must meet one of the following conditions:

– The majority of the company’s shares (i.e., >50%) must be owned by third-country nationals.

It is noted that in case where the percentage of the foreign participation in the share capital of the Company is equal to or below 50% of the total share capital, the Company can still be considered as eligible, if the foreign participation in the share capital represents an amount equal to or greater than €200.000. OR

– Public companies registered on any recognized Stock Exchange. OR
–  Companies which were previously registered with the Central Bank as “offshore” entities. OR
– Cypriot Shipping Companies. OR
– Cypriot High-Tech/Innovation companies. OR
– Cypriot Pharmaceutical companies or Cypriot companies active in the fields of Biogenetics and Biotechnology. OR
– The majority of the share capital of the company is ultimately owned by persons who acquired the Cypriot citizenship by naturalization based on economic criteria, provided that the conditions under which they were naturalized continue to be met.

     2. Eligible businesses must have offices in Cyprus

Eligible businesses must operate from independent offices in Cyprus, in suitable premises, separate from any private housing or other office, except in the case of business co-habitation.

Important note: Companies already registered with the CRMD as companies of foreign interest, will not have to re-register with the BFU, as the new policy automatically applies to these companies.

Work permits for third-country nationals

Once the eligible company is registered with the BFU as a foreign company, a written confirmation will be issued and on that basis the company may then proceed with the work permit applications for its highly skilled employees, directly through the relevant department of the CRMD.

The main requirements for the employment of highly skilled third-country nationals through the fast-track process, are the following:

– Minimum gross salary of €2.500 per month.
– The third-country national should be a holder of a university degree or diploma or confirmation of relevant experience in a corresponding employment position for at least 2 years duration.
– The employment contract should be for a period of at least 2 years.

The work permits should be issued within one month from the date of the submission of the complete application package and be valid for a period of 3 years.

Important note: The maximum number of third-country nationals that can be employed by a foreign company is set at 70% of the total number of all the employees of the company. This limit should be achieved over a period of 5 years, from the date of the enactment of this policy (i.e., 1/1/2022). On that basis the first evaluation of this condition will be undertaken on 1/1/2027.

Family reunification process

Family members of third-country nationals that are working for foreign companies, can also apply for residence permits in Cyprus through the family reunification process.

It should be highlighted that spouses of third-country nationals that are working for foreign companies, will have the right to free access of Cyprus’ labor market, for remunerated employment.