Amendments to tax laws for the prevention of tax abuse

The House of Representatives voted into Cyprus Law, on 9 December 2021, amendments to the Income Tax Law (“ITL) and to the Special Contribution for Defence Law (“SCDL”), aiming to prevent tax abuse, evasion and avoidance by strengthening the Cyprus tax framework. These amendments will come in effect on 31 December 2022.

Both tax amendments are in line with recent EU Country-Specific Recommendations for Cyprus and the EU guidelines for defensive tax measures to be adopted by EU Member States towards EU blacklisted jurisdictions. As of 24 February 2022, the EU blacklist consists of American Samoa, Fiji, Guam. Palau, Panama. Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu. This list is revised twice a year.

Withholding taxes (“WHT”) on dividends

In SCDL a WHT at the rate of 17% is introduced, that applies on dividends paid by a Cyprus tax resident company to companies which are:

• resident in EU blacklisted jurisdictions
• incorporated/registered in EU blacklisted jurisdictions and are not tax resident in any other jurisdiction that is not included in the EU Blacklist

The above is subject to the following conditions:

•  the WHT is not applicable if the dividends are paid on listed shares of a recognized stock exchange
• the direct recipient holds directly or jointly with associated companies, more than 50% of the capital, voting rights or entitlement to profit in the Cyprus company paying the dividends
• the above-mentioned associated companies are resident/incorporated/registered in EU blacklisted jurisdictions and are not tax resident in any other jurisdiction that is not included in the EU Blacklist

.WHT on interest 

In SCDL a WHT at the rate of 30% is introduced, that applies on interest paid by a Cyprus tax resident company to companies which are:：

• resident in EU blacklisted jurisdictions
• incorporated/registered in EU blacklisted jurisdictions and are not tax resident in any other jurisdiction that is not included in the EU Blacklist

The above is subject to the following conditions:

• the WHT is not applicable if the interest is paid on listed securities of a recognized stock exchange 
•  the interest is paid by an individual

WHT on royalties 

In ITL a WHT at the rate of 10% is introduced, that applies on royalties paid by a Cyprus tax resident company to companies which are:

• resident in EU blacklisted jurisdictions

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