On 21 December 2021, the amendments to the Special Defence Contribution Law and Income Tax Law were published in a Cyprus Government Gazette (“Law amendments”) for the purpose of the introduction of legislative defensive tax measures, which will be implemented in Cyprus in connection to jurisdictions that are listed on the EU list of non-cooperative jurisdictions for the purpose of tax (generally known as “EU blacklisted jurisdictions”).
In line with the Law amendments, Cyprus is going to apply withholding tax (WHT) on particular outbound payments of royalties, interest, and dividends in case the recipient is a company included in an EU blacklisted jurisdiction, as follows:
- Royalties at the rate of 10%
- Interest at the rate of 30%
- Dividends at the rate of 17%
The Law that has been amended would come into effect from 31 December 2022.
EU list of non-cooperative jurisdictions for tax purposes
After the latest update of the EU blacklist, which will come into effect from 12 October 2021, there are around 9 jurisdictions included in the EU blacklist. These include:
- American Samoa
- Palau
- Trinidad and Tobago
- Fiji
- Panama
- U.S. Virgin Islands
- Guam
- Samoa Vanuatu
Companies in the scope of the defensive tax measures
As per the Law amendments, the defensive tax measures shall be applied to those companies which are:
- registered or incorporated in an EU blacklisted jurisdiction; or
- a resident in an EU blacklisted jurisdiction; and
- not a tax resident in another jurisdiction which is not included in the EU blacklist. (“companies in scope”)
WHT on outbound payments of dividends
As of now, no WHT is imposed on outbound dividend payments to tax resident shareholders (companies or individuals) that are not from Cyprus.
As per the Law amendments, a WHT at the rate of 17% should be applied in line with the Special Defence Contribution Law on those dividends that are received by a company in scope from a Cyprus resident company in which it directly takes part either with more than 50% in the capital, or more than 50% in the voting rights or is permitted to receiving more than 50% of the profits.
An exemption is applied for outbound payments of dividends which are received by a company within the extent with regards to titles that are included and listed on any of the well known or recognized Stock exchanges.
Moreover, in order to deal with the situation where a Cyprus resident paying company is owned directly by more than one company within the extent, there has been an introduction of an anti-abuse provision.
WHT on outbound payments of interest
As of now, no WHT is imposed on outbound interest payments to tax resident shareholders (companies or individuals) that are not from Cyprus.
As per the Law amendments, WHT at the rate of 30% would be applied in line with the Special Defence Contribution Law on “passive” interest credited or received by a company within the extent of a Cyprus resident company.
An exemption is applied for outbound payments of interest which are credited or received by a company within the extent with regards to titles that are included and listed on any of the well known and recognized Stock exchanges.
WHT on outbound payments of royalties
As of now, WHT at the rate of 10% is being imposed on outbound royalty payments to foreign tax residents (companies or individuals), who are not considered to be involved in any of the businesses within Cyprus, for royalty income acquired in Cyprus in rights that were granted for the use in Cyprus.
The existing provisions above are enhanced by the Law amendments. Also, as per the Law amendments, a WHT at the rate of 10% should also be applied in line with the Income Tax Law on royalty income which was acquired in Cyprus by a company in scope for rights that were accorded for the use outside Cyprus.
For more information please contact us at info@savvacyprus.com. We would be happy to assist you.
