M. Target Group would like to remind of the two amendments to Special Contribution for Defence Law (SCDL) and the Income Tax law (ITL) aiming to strengthen Cyprus tax framework and prevent tax abuse that were published in the Official Gazette in December 2021 and will come in force as from 31 December 2022.
The laws are in line with recent EU Country-Specific Recommendations for Cyprus and the EU guidelines for defensive tax measures to be adopted by EU Member States towards EU blacklisted jurisdictions.
The new provisions include the introduction of withholding taxes (WHT) on payments to companies in jurisdictions included in theEU Blacklist of non-cooperative jurisdictions (“EU Blacklist”):
Dividends
WHT at the rate of 17% applies on dividends paid by a Cyprus tax resident company to companies which are:
- resident in jurisdictions included in the EU Blacklist, or
- incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.
The following conditions apply:
- The company receiving the dividend holds directly, either alone or jointly with associated companies, over 50% of the capital, voting rights, or is entitled to receive more than 50% of the profits in the company paying the dividends.
- The associated companies should also be resident in an EU blacklisted jurisdiction or incorporated/ registered in an EU blacklisted jurisdiction and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.
The WHT does not apply in the case of dividend payments on shares listed on a recognized stock exchange.
Interest
WHT at the rate of 30% applies on interest paid by a Cyprus tax resident company to companies which are:
- resident in jurisdictions included in the EU Blacklist, or
- incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.
The WHT does not apply in the case of:
- interest payments on securities listed on a recognized stock exchange.
- Interest payments made by individuals.
Royalties
WHT at the rate of 10% applies on royalties paid by a Cyprus tax resident company to companies which are:
- resident in jurisdictions included in the EU blacklist, or
- incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.
The WHT does not apply in the case of royalty payments made by individuals.
Definition of “Cyprus tax resident company” / Additional corporate residency test
In an effort to strengthen the residency rule framework beyond the management and control criterion/concept, the term Cyprus tax resident company was expanded to also include a company that was incorporated/registered in Cyprus, but whose management and control is exercised outside Cyprus, as long as the company is not a tax resident in any other State.
As always, M. Target Group specialists remain at your disposal should you require any further information, clarification or professional assistance with any tax matter.
