Cyprus Introduces New Tax Measures on Low-Tax Jurisdictions
Cyprus has passed legislation introducing stricter tax measures targeting low-tax and non-cooperative jurisdictions:
- 17% withholding tax on dividends paid to associated companies in low-tax jurisdictions, effective from 1 January 2026.
- Interest and royalty payments to such companies will no longer be tax-deductible from the same date.
- Low-tax jurisdictions are defined as those with a corporate tax rate less than half of Cyprus’s 12.5% rate.
- New withholding taxes will also apply to companies based in jurisdictions on the EU’s non-cooperative list, effective by the end of April 2025.
Key points of the new framework:
- Replaces the previous regime focusing only on EU-blacklisted jurisdictions.
- Extends to all low-tax jurisdictions, whether blacklisted or not.
- Applies where the associated company owns more than 50% of the Cypriot entity or vice versa.
- Includes payments to permanent establishments in low-tax jurisdictions.
Purpose:
The changes aim to align Cyprus’s tax practices with international standards under its Recovery and Resilience Plan, tied to EU funding. Further reforms, including measures against aggressive tax planning, must be completed by 30 June 2026.