Cyprus Introduces New Defensive Tax Rules on Payments to Non-cooperative and Low-tax Jurisdictions

On April 16, Cyprus published Laws No. 47(I)/2025 and No. 48(I)/2025 in the Official Gazette, which update defensive measures on outbound payments of dividends, interest, and royalties to jurisdictions that do not cooperate with the EU for tax purposes or low-tax jurisdictions (“blacklisted” jurisdictions).

The receiving company of such payments is associated with or related to the other company through 50% direct or indirect ownership. Low-tax jurisdictions are those where the corporate tax rate is less than 50% of Cyprus’s corporate tax rate (12.5%), making it 6.25%.

The laws also cover payments made to permanent establishments of non-Cyprus companies located in non-cooperative or low-tax jurisdictions.

• Dividend payments by Cyprus tax resident companies to incorporated or tax resident companies in non-cooperative or low-tax jurisdictions are subject to a 17% withholding tax, except those with shares listed on any recognized stock exchange.

• Interest payments by Cyprus tax resident companies to incorporated or tax resident companies in non-cooperative or low-tax jurisdictions are subject to a 17% withholding tax, except those with shares/securities listed on any recognized stock exchange. Interest payments made by Cyprus tax-resident companies to affiliated incorporated or tax-resident entities based in low-tax jurisdictions are non-deductible, except those securities listed on any recognized stock exchange.

• Royalty payments by Cyprus tax resident companies  made to associated companies that are either tax residents of or incorporated in non-cooperative jurisdictions are subject to a 10% withholding tax. Royalty payments made by Cyprus tax-resident companies to affiliated entities in low-tax jurisdictions are ineligible for tax deductions.

If an associated company is incorporated in a non-cooperative or low-tax jurisdiction but is not tax resident there, defensive measures apply unless it is tax resident in another jurisdiction that is not a non-cooperative or low-tax jurisdiction.

A Cypriot company making payments to another entity without defensive measures must keep supporting documents for at least six years after the tax year of the payments.

The laws instill the requirement to provide tax documents at the request of tax authorities. Failure to do so will result in penalties: EUR 2,000 for delays of 61-90 days, EUR 4,000 for 91-120 days, and EUR 10,000 for delays over 120 days or non-provision at all.

If Cyprus has a tax treaty with a non-cooperative or low-tax jurisdiction that prevents withholding tax on dividends, interest, and royalties, Cyprus must review the treaty within three years.

The defensive measures come into force on April 16, 2025 for non-cooperative jurisdictions, and on January 1, 2026 for low-tax jurisdictions.