Further to our previous newsfeed on this, on 10 April 2025 some legislative provisions were voted by the Cyprus Parliament related to payments from Cyprus to entities in low tax and blacklisted jurisdictions. Through these provisions, payments made to associated enterprises in low tax jurisdictions are affected, as presented below.
The legislation introduced also amends existing provisions that require the imposition of Withholding Tax (WHT) on dividend, interest and royalty payments made to companies in countries included in the EU Blacklist of non-cooperative jurisdictions (‘EU Blacklist’). These amended provisions will enter into effect once the law is published in the Official Gazette of the Republic of Cyprus.
A General Anti Abuse Rule (GAAR) as well as provisions for renegotiation of impacted Double Tax Treaties (DTTs) are also covered by the legislation.
The changes introduced are covered below in more detail.
Low Tax Jurisdictions
Firstly, low-tax jurisdictions are defined as jurisdictions with a corporate tax rate lower than 50% of the rate of the Income Tax in Cyprus, that is lower than 6.25%.
In order for the provisions to apply the payments must be made to an associated person. Such a person is defined in the legislation. In effect, the payments must be made to a company that has a direct or indirect ownership relation with the Cyprus company, which is more than 50%, either alone or together with other associated persons.
The provisions also apply to payments made to permanent establishments (PEs) in such jurisdictions, irrespective of the country of the company maintaining the PE.
Dividends
Dividends paid by a company which is tax resident in Cyprus to a company, which is tax resident in a low tax jurisdiction shall be subject to WHT at the rate of 17%.
The WHT does not apply on dividend payments related to shares listed on a recognised stock exchange.
Interest
Interest paid to a company which is tax resident in a low tax jurisdiction shall not be considered as a tax deductible expense for the Cyprus entity. No withholding tax shall be applied.
The above does not apply to interest paid in relation to securities listed on a recognised stock exchange and to interest paid by individuals.
Royalties
Royalties paid to a company which is tax resident in a low tax jurisdiction shall not be considered as a tax deductible expense for the Cyprus entity. No Withholding Tax (WHT) shall be imposed.
The WHT does not apply on royalty payments made by individuals.
GAAR
The purpose of the GAAR is to tackle arrangements lacking commercial substance the main purpose of which is to circumvent the application of the aforementioned measures. (i.e. entities not in EU Blacklist or low tax jurisdictions). So in case certain qualifying criteria are not met, the provisions applicable to entities in EU Blacklist or low tax jurisdictions will apply, unless valid commercial reasoning is justified. The criteria will be defined in a decree, expected to be issued soon.
Renegotiation of DTTs
For DTTs with EU Blacklist or low tax jurisdictions, based on which Cyprus does not have the right to impose WHT on dividends, interest and royalties, the legislation provides that those jurisdictions will be notified within three years to initiate a treaty renegotiation process.
