On 21st of December 2021, two amending laws were published in the Official Gazette for the prevention of tax abuse and will be in force from 31st of December 2022.

Overview of the laws

Cyprus to introduce an additional Corporate Tax Residency Test

In accordance with the Income Tax Law, a company is considered to be a tax resident of Cyprus, if its management and control is exercised in Cyprus. This existing tax residency test will continue to apply thus not effecting the tax residency status of a company that currently has its management and control in Cyprus.

In accordance with the Law amendment, the definition of a ‘’resident in the Republic’’ is enhanced to include a company that was established or registered in Cyprus, but whose management and control is exercised outside Cyprus, is considered to be resident of the Republic provided the company is not a tax resident in any another State, and as such taxed in Cyprus on their worldwide income.

Introduction of withholding taxes

Introduction of withholding taxes (WHT) on payments to companies in jurisdictions included in the EU Blacklist of non-cooperative jurisdictions (“EU Blacklist”).

Interest

WHT at the rate of 30% applies, subject to a number of exceptions, 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.

This is provided the interest is derived from sources within Cyprus.

The above will not apply on any interest payments made by an individual from interest received by a company which was paid from securities, bonds, debentures etc. listed on a recognized stock exchange.

Dividends

WHT at the rate of 17% applies, subject to certain conditions, on dividends paid by a Cyprus tax resident company to companies which are:

• resident in jurisdictions included in the EU Backlist, 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.

For the above to apply the company (or associated companies alone or collectively ) of the EU Blacklist countries must own more than 50% in voting rights or owns more than 50% share capital or is entitled to 50% or more of the profits of the Cypriot company paying the dividend. No withholding tax will be imposed on dividends paid in relation to securities listed on a recognized stock exchange.

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.

Where royalty payments are made by individuals, the WHT does not apply.

The information provided by A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.

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