On 9 December 2021 the Cyprus Parliament approved some amendments to the Income Tax law and the law on Special Contribution for Defence related to the definition of tax residency of Cyprus incorporated companies and to the introduction of Withholding Taxes on payments of royalties, dividends and interest to certain jurisdictions.
The amendments are presented in more detail below.
Tax residency for companies
A company is currently considered as tax resident of Cyprus if its management and control is exercised in Cyprus.
Through the change introduced, any company incorporated or registered in Cyprus for which the management and control is exercised outside Cyprus will be considered as tax resident of Cyprus, unless it is considered as tax resident in any other country.
Therefore, it will no longer be possible to have a company incorporated in Cyprus not being considered as a tax resident in any jurisdiction.
Payments outside Cyprus
Royalties
Royalties paid from Cyprus to a company which is either a tax resident in a country included in the EU Blacklist of non-cooperative jurisdictions (‘EU Blacklist’) or incorporated in one of those countries without being a tax resident in any other jurisdiction that is not included in the EU Blacklist, will be subject to a Withholding Tax (WHT) of 10%. This will apply irrespective of whether the asset for which the royalty payment made is for use in Cyprus or elsewhere.
The WHT does not apply on royalty payments made by individuals.
Dividends
Dividends paid by a company which is tax resident in Cyprus to a company, which is either tax resident in a country included in the EU Blacklist or incorporated in one of those countries without being a tax resident in any other jurisdiction that is not included in the EU Blacklist, will be subject to WHT at the rate of 17%.
The above applies in cases where the company receiving the dividend holds more than 50% of the share capital, voting rights, or is entitled to receive more than 50% of the profits of the company paying the dividend, either alone or jointly with associated companies.
Any associated companies should also be resident in a country included in the EU Blacklist or incorporated in one of those countries and without being tax residents in any other jurisdiction that is not included in the EU Blacklist.
The WHT does not apply on dividend payments related to shares listed on a recognised stock exchange.
Interest
Interest paid by a company which is tax resident in Cyprus to a company, which is either tax resident in a country included in the EU Blacklist or incorporated in one of those countries without being a tax resident in any other jurisdiction that is not included in the EU Blacklist, will be subject to WHT at the rate of 30%.
The above does not apply to interest paid in relation to securities listed on a recognised stock exchange and to interest paid by individuals.
Entry into force
The amendments were published in the Official Gazette of the Republic of Cyprus on 21 December 2021 and will come into force on 31 December 2022.
We are at your disposal for any further information or clarification you would like to receive on the above or on any other matter concerning Cyprus.
