January 2022: Amendments to the Cyprus Tax Legislation
10 January 2022
Tax Newsletter – January 2022: Amendments to the Cyprus Tax Legislation, with the purpose of strengthening the Cyprus tax framework for the prevention of tax abuse, tax evasion and tax avoidance.
The Cyprus Parliament has voted in December 2021 the below Tax bills aiming to prevent aggressive tax planning and make the Cyprus tax framework fairer and more effective.
The relevant bills were published in the Cyprus Government Gazette on the 21st of December 2021 and will come into effect on 31st of December 2022.
Overview of the new provisions:
- Definition of “Cyprus tax resident company”
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 any Cyprus incorporated/registered entity that is not a tax resident in another State.
- Introduction of Withholding Taxes
Introduction of withholding taxes (WHT) on payments to companies that are incorporated and resident in jurisdictions included in the EU Blacklist of non-cooperative jurisdictions (“EU Blacklist”). Payments to entities incorporated in an EU Blacklist jurisdiction but tax resident in a non-Blacklist jurisdiction are exempted from these provisions as are payments to entities listed on a recognized stock exchange.
The EU list of non-cooperative jurisdictions for tax purposes is published by the EU. As at the present time it comprises of:
- American Samoa
- Fiji
- Guam
- Palau
- Panama
- Samoa
- Trinidad and Tobago
- US Virgin Islands
- Vanuatu
The list is regularly updated and published in the Official Gazette.
The following withholding rates apply:
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WHT
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Notes
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Dividends
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17%
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in respect of payments made to entities that either alone or jointly with other associated entities that are incorporated and resident in a EU blacklist jurisdiction hold more than 50% of the capital, voting rights, or are entitled to receive more than 50% of the profits in the company paying the dividends.
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Interest
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30%
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On payments to entities incorporated in an EU Blacklist recipient is tax resident in a non-EU Blacklist jurisdiction.
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Royalties
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10%
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On payments to entities incorporated in an EU Blacklist recipient is tax resident in a non-EU Blacklist jurisdiction.
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It should be noted that the laws do not indicate the effective date of application of WHT to jurisdictions added to or removed from the EU Blacklist. The Cyprus Tax Authorities are expected to issue guidelines in this respect. It is expected that the withholding tax will apply according to whether an entity is on the EU Blacklist as at the time of payment.
For further information and explanations on the above developments please contact your tax adviser at BDO.