In early winter 2021, the Cyprus Parliament gave approval for the purpose of making the definition of corporate tax residency more extensive for Cyprus companies in order to further include the incorporation test.
According to the current law, if the management and control of a Cyprus company is exercised and used in Cyprus, that company is considered to be a Cyprus tax resident. Moreover, after the introduction of the incorporation test and as per the new law, if a company is not a tax resident of another country and also does not have management and control operations in Cyprus, it will be regarded as the tax resident of Cyprus as it was incorporated in Cyprus. This will be implemented from 31 December 2022.
Withholding tax payments of interest, dividends and royalties from the companies of Cyprus to companies
resident or registered in jurisdictions that are included in the EU list of non-cooperative jurisdictions on tax
In addition to this, another law has been approved on a similar date as mentioned above. It will be implemented from 31st December 2022. As per this law, 17% withholding tax will apply in case a Cyprus tax resident company makes the payment of dividends to:
- a company which is a resident and falls in the jurisdiction which is listed on the EU List of non-cooperative jurisdictions on tax matters (black list see link: https://www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions/);
- or to a firm that is registered or incorporated in a particular jurisdiction that is listed on the EU Black List and not regarded as a tax resident in another jurisdiction that is not listed on the EU Black List.
In order for the aforementioned conditions to come into effect, the company (or associated companies alone or collectively) of the nations of the EU Black List should have more than 50% voting rights or more than 50% participation, or permitted for more than 50% of the profits of the Cypriot company paying the dividend (this is not applicable for dividends paid from those companies that are included and listed in a recognized Stock exchange), or have more than 50% of share capital. Moreover, in accordance with the above-mentioned provision, tax withheld under Deemed dividend distribution rules of the Special Defence Contributions Law, the tax withheld will not be refunded to the non-resident shareholders that are listed on the EU List.
Interest payments (or credited) are also going to be conditional upon the withholding tax at the rate of 30% in case:
- credited of paid to a company which is considered to be a resident in a particular justification which is listed on the EU List as above;
- or to a company that has been registered or incorporated in a particular jurisdiction that is listed on the EU List and is not considered to be a resident in another jurisdiction that is not listed on the EU List.
This indicates that the interest is derived from those sources that are within Cyprus.
The above conditions are not going to be applied on any of the interest payments that have been made by a person of interest which is credited to or received by a company listed on the EU list that was paid from bonds debentures, securities etc. listed and included on a well recognized and known stock exchange
Royalty payments will be subject to 10% withholding tax in case if paid to:
- to a company of a jurisdiction which is included on the EU List (see link above);
- or to a company that has been registered or incorporated in a jurisdiction that is listed on the EU List and is not considered to be a resident in another jurisdiction that is not listed on the EU List.
The aforementioned conditions are not applicable to any of the royalty payments that are made by an individual.
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