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.