On December 21rst 2021, two provisions amending the Special Contribution for Defense Law (SCDL) and the Income Tax law (ITL) were published in the Official Gazette to be effective as from 31 December 2022, with the purpose to enhance the legal prevention towards tax abuse & aggressive tax-planning, according to the EU Recommendations (CSRs) for defensive tax measures to be adopted by EU Member States against EU blacklisted jurisdictions.
Article 2 of the Income Tax law (ITL)
An additional tax residency test is imposed to enhance the management and control criterion that is a condition to Cyprus tax resident company, in that a company incorporated in Cyprus with management and control exercised outside Cyprus is considered to be a Cyprus tax resident as long as it is not a tax resident in any other State.
Withholding Taxes (WHT)
The provisions focus on imposing withholding taxes (WHT) on payments to companies based in jurisdictions included in the EU Blacklist of non-cooperative jurisdictions.
Dividends
A WHT of 17% is imposed to dividends paid by a Cyprus tax resident company to:
-Companies being resident in jurisdictions included in the EU Backlist, or
-Companies incorporated in a jurisdiction included in the EU Blacklist and that are not tax resident in any other jurisdiction not included in the EU Blacklist.
Further to the above:
-The company receiving the dividend holds directly, either alone or jointly with associated companies, over 50% of the capital, voting rights, or is entitled to receive more than 50% of the profits in the company paying the dividends.
-The associated companies should also be resident in an EU blacklisted jurisdiction or incorporated/ registered in an EU blacklisted jurisdiction and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.
-The withholding tax does not apply to dividends paid on shares listed on a recognized stock exchange.
Interest
A WHT of 30% is imposed to interest paid by a Cyprus tax resident company to:
-Companies being resident in jurisdictions included in the EU Blacklist, or
-Companies incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.
Further to the above: The withholding tax does not apply to interest payments on securities listed on a recognized stock exchange and interest payments made by individuals.
Royalties (Article 21 of the ITL)
A WHT of 10% is imposed to royalties paid by a Cyprus tax resident company to:
-Companies that are resident in jurisdictions included in the EU blacklist, or
-Companies incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.
Further to the above: the withholding tax does not apply to royalty payments made by individuals