Cyprus Tightens Withholding Tax Rules
On 10 April 2025, the House of Representatives approved amendments to the Income Tax Law and the Special Defence Contribution Law. These changes introduce withholding taxes on royalty, dividend, and interest payments made to companies that are either tax residents of countries listed on the EU blacklist or incorporated in those jurisdictions without being tax residents elsewhere.
The amendments also affect royalty and interest payments made to entities based in low-tax jurisdictions. In such cases, the related expenses will no longer be tax-deductible for Cypriot companies. Similarly, dividend payments to these low-tax jurisdictions will now be subject to withholding tax, in line with the treatment of payments to blacklisted countries.
The amendments introduce the following measures:
- Withholding Tax on Payments to Blacklisted Jurisdictions: A 17% withholding tax on dividends and interest, and a 10% withholding tax on royalties, paid to companies that are tax residents of jurisdictions included in the EU list of non-cooperative jurisdictions. These measures are already in force.
- Non-Deductibility of Payments to Low-Tax Jurisdictions: Interest and royalty payments made to companies in low-tax jurisdictions will not be deductible for corporate income tax purposes, effective from 1 January 2026.
- Withholding Tax on Dividends to Low-Tax Jurisdictions: Dividends paid to companies in low-tax jurisdictions will be subject to a 17% withholding tax, effective as of 1 January 2026.
Low-tax jurisdictions are those with a corporate tax rate less than 50% of Cyprus’s current corporate tax rate, which is 12.5%.
These amendments are intended to strengthen Cyprus’s compliance with EU directives and OECD standards, discouraging the use of low-tax and non-cooperative jurisdictions for profit shifting and tax avoidance.
In light of these developments, taxpayers are encouraged to assess the impact on their cash flows, ownership structures, and financing arrangements to mitigate any potential adverse consequences.
Cypriot companies are advised to review their structures and payment flows to determine the potential impact of these changes and ensure timely compliance.
For further advice and professional assistance, our firm is ready to support you. Please feel free to contact us to discuss how these changes may affect your business.
