On 21 December 2021, two amending laws (available in Greek only) were published in Cyprus' official gazette that aim to strengthen the country's tax framework for the prevention of tax abuse. The new provisions amend the Special Defence contribution and the Income Tax Law and are effective as from 31 December 2022.

The laws are in line with recent EU Country-Specific Recommendations (CSRs) for Cyprus and the EU guidelines for defensive tax measures to be adopted by EU member states towards jurisdictions on the EU list of noncooperative jurisdictions for tax purposes.

The purpose of the new measures is to prevent aggressive tax planning and make the tax framework fairer and more effective.

Overview of the new provisions

1.      Withholding taxes

Amendments to the SCDL (dividends and interest) and the ITL (royalties) will introduce withholding tax (WHT) on payments by Cyprus tax resident companies to companies which are:

• Resident in jurisdictions included in the EU black list; or
• Incorporated/registered in a jurisdiction included in the EU black list and are not tax resident in any other jurisdiction that is not included in the EU black list.

Dividends

WHT at the rate of 17% will be imposed on dividends paid by a Cyprus tax resident company to such a recipient where:

• The company receiving the dividend holds directly, either alone or jointly with associated companies, over 50% of the capital or voting rights of or is entitled to receive more than 50% of the profits of the company paying the dividends; and
• The associated companies also are residents in an EU black listed jurisdiction or incorporated/registered in an EU black listed jurisdiction and not tax resident in any other jurisdiction not included in the EU black list.

WHT will not apply to dividend payments on shares listed on a recognized stock exchange.

Interest

WHT at the rate of 30% will be imposed on interest paid by a Cyprus tax resident company to such a recipient other than interest payments:

• On securities listed on a recognized stock exchange; or
• Made by individuals.

Royalties

WHT at the rate of 10% will be imposed on royalties paid by a Cyprus tax resident company to such a recipient, other than royalties paid by individuals.

The laws do not indicate the effective date of application of WHT to jurisdictions added to or removed from each updated version of the EU black list. It is expected that this and certain other issues (for example, the application of WHT on a cash or accruals basis) will be clarified by the Cyprus tax authorities.

2.      Definition of Cyprus tax resident company

In an effort to strengthen the residency rule framework beyond the management and control criterion/concept, the term "Cyprus tax resident company" is expanded also to include a company incorporated/registered in Cyprus, but whose management and control is exercised outside Cyprus, as long as the company is not a tax resident anywhere else in the world.