This brief memo is to remind you that, the Laws that were implemented in December 2021, aiming to prevent aggressive tax planning, are effective as of 31 December 2022. The new measures have been implemented by EU Member States against EU-blacklisted jurisdictions.
As per the new Law, Cyprus Companies, under certain conditions, explained here below, must apply to withhold tax on dividends, interest, and Royalties. That is paid to the EU Blacklist of non-cooperative jurisdictions (“EU Blacklist”) (Amending the SCDL).
Dividends
A 17% withholding tax must be applied 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.
The following conditions must 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.
There is no withholding tax when the dividend is payable on shares listed on a recognised stock exchange.
Interest
A 30% withholding tax 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 withholding tax does not apply in the case of:
- interest payments on securities listed on a recognised stock exchange.
- Interest payments made by individuals.
Royalties
A 10% withholding tax 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.
Pending clarification
We are expecting a clarification from the Tax Authorities on whether the withholding must be applied on cash basis (i.e. when actually paid) or when derived (i.e. on accruals basis).
For easy reference, to the consolidated list as of 17/02/2023 of high-risk countries (EU HIGH-RISK THIRD COUNTRIES, FATF HIGH-RISK AND NON-COOP, EU TAX LIST) click here.
Finally, in order to strengthen the residency rule framework beyond the management and control criterion/concept, the term Cyprus tax resident company now includes a Company that was incorporated/registered in Cyprus. Whose management and control is exercised outside Cyprus, as long as the company is not a tax resident in any other State.
For more details, please contact:
George Yiallourides
Managing Director
T: +357 25443132
E: yiallourides@ayca.com.cy