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.
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:
WHT at the rate of 17% will be imposed on dividends paid by a Cyprus tax resident company to such a recipient where:
WHT will not apply to dividend payments on shares listed on a recognized stock exchange.
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:
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.
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.