Brief
On the 21st of December 2021, the Cyprus Parliament, approved legislative amendments to boost Cyprus’ tax framework. The majority of amendments draw attention and directly impact companies from jurisdictions that are included in the EU blacklist of non-cooperative jurisdictions for tax purposes, with an introduction of new provisions for withholding taxes on outbound payments of dividend, interest and royalties to blacklisted jurisdictions.
The current EU blacklist is currently composed of the following jurisdictions: American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu.
Furthermore, the amendments introduce a key change to the definition of Cypriot companies’ tax residency, with the addition of the ‘incorporation test’.
The Law amendment will enter into force on 31 December 2022.
Cyprus Tax Residency
The current Income Tax law states that a Cyprus company is considered as a Cyprus tax resident if the management and control is exercised in Cyprus. The amendments expand the definition of corporate tax residency for Cyprus companies and includes the incorporation test, this means that Cyprus incorporated companies, with
- management and control exercised outside Cyprus; and
- not tax resident in any other jurisdiction, will now be considered as Cyprus tax residents and as such, taxed in Cyprus on their worldwide income.
The existing corporate tax residency test will continue to apply, so that a company that has its management and control in Cyprus will continue to be considered as a tax resident of Cyprus i.e. its tax residency status will not be affected by the Law amendment.
EU Blacklist Jurisdictions – Withholding Taxes
The new amendments also introduce withholding taxes for outbound payments of interest payments, dividends and royalty payments to jurisdictions of the EU Blacklist.
Interest payments
Interest payments by a Cyprus tax resident company to another company will be subject to withholding taxes at the rate of 30% if paid to a company which is:
- resident in any jurisdiction which is included in the EU Blacklist, or
- registered in any jurisdiction which is included in the EU Blacklist and is not a tax resident in any other jurisdiction which is not included in the EU Blacklist.
Exclusions apply to situations where:
- Interest payments are completed in relation to securities listed on a recognized stock exchange, and
- Interest payments are made by an individual.
Dividends
Dividends paid by a Cyprus tax resident company to another company will be subject to 17% special defence contribution if paid to a company which is:
- resident in any jurisdiction which is included in the EU Blacklist, or
- registered in any jurisdiction which is included in the EU Blacklist and is not a tax resident in any other jurisdiction which is not included in the EU Blacklist.
Further, either of the below conditions must also apply:
The company receiving the dividend holds over 50% of the capital of the Cyprus resident company issuing the dividend, holds over 50% of the voting rights or is entitled to receive more than 50% of the profits in the company paying the dividend.
Royalty payments
Royalty payments by a Cyprus tax resident company to another company will be subject to withholding taxes at the rate of 10% if paid to a company which is:
- resident in any jurisdiction which is included in the EU Blacklist, or
- registered in any jurisdiction which is included in the EU Blacklist and is not a tax resident in any other jurisdiction which is not included in the EU Blacklist.
Exclusions apply to situations where:
- Royalty payments are made by individuals.
What we do
Panayiotis Z. Toulouras LLC provides corporate services to clients worldwide. Our law firm, with it’s team of experts, provides strategic advice for individuals and entities, seeking the foreign interest company route, and ensures a smooth transition for all clients aiming to relocate an existing business or launch a new business in Cyprus.
- Incorporation of a Cyprus company
- Registration of a Foreign Interest Company
- Business visa applications and other visas
- Launch and Setting up consultation
- Corporate Structuring
- IP registration
- Advice on all related tax aspects
- Opening of corporate and personal bank accounts in Cyprus and abroad
- VAT and TAX registrations
- Relocation assistance and advice