Introduction:

In recent years, Cyprus has made significant strides in reforming and modernizing its tax system, aligning it closely with international standards. This evolution has been marked by a series of crucial developments, ranging from the expansion of double taxation treaties to the introduction of new tax compliance measures. These changes reflect Cyprus's ongoing commitment to fostering a competitive yet transparent fiscal environment. This article delves into the key milestones in Cyprus's tax legislation over the past few years, highlighting their implications for businesses and investors. These developments are summarised below:

  • Cyprus has been actively enhancing and broadening its network of double taxation treaties (DTTs). A significant update came with the effective implementation of a Protocol within the Cyprus-Germany DTT on January 1, 2022. Additionally, a new DTT with Jordan was established and came into effect on April 11, 2022. Moreover, a newly established Cyprus-Netherlands DTT was implemented from June 30, 2023, and is anticipated to be operational from January 1, 2024. And most recently, on 27 October 2023 Cyprus ratified the new Double Tax Treaty with the Republic of Croatia (the "Treaty"). The Treaty was signed on 17 October 2023 by the Cyprus and the Croatian Ministers of Finance. As announced by the Cyprus Ministry of Finance on that day, the Treaty is based on the OECD Model Tax Treaty and incorporates the Base Erosion and Profit Shifting ("BEPS") minimum standards.
  • April 5, 2019, marked a pivotal development in Cyprus's tax legislation with the enactment of the initial law implementing the European Union's Anti-Tax-Avoidance Directive (ATAD). This implementation included rules on interest limitation, controlled foreign companies (CFC), and a general anti-abuse rule (GAAR), effective for tax years beginning on or after January 1, 2019. Further details on this can be found in sections relating to Deductions and Group taxation.
  • On June 19, 2020, Cyprus legislated further measures under the ATAD, which came into effect as follows:
    1. The exit taxation provisions took effect from January 1, 2020.
    2. The rules concerning hybrid mismatches were implemented from January 1, 2020, with specific provisions for reverse-hybrid mismatches being effective from January 1, 2022.
  • These laws specifically impact corporate income taxpayers in Cyprus, including tax resident companies and permanent establishments (PEs) of non-resident companies, with certain exceptions pertaining to reverse-hybrid mismatches.
  • Cyprus has been a proactive participant in international tax compliance and reporting standards. It adopted the Common Reporting Standard (CRS) for the automatic exchange of financial account information and signed an intergovernmental agreement with the United States regarding the Financial Account Tax Compliance Act (FATCA).
  • On June 7, 2017, Cyprus signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). This was ratified on January 23, 2020. The application of the MLI to specific bilateral DTTs depends on the legal processes of the other contracting jurisdictions. Cyprus has also incorporated all EU Directives on Administrative Cooperation and Mutual Assistance (DACs 1-5) into its legal and tax framework.
  • On March 18, 2021, the Cyprus House of Representatives passed the Law on Administrative Cooperation in Taxation (Law N. 205(I)/2012), incorporating the EU Directive 2018/822 (DAC6) on mandatory reporting and exchange of cross-border arrangements information. This law, published in the Official Gazette on March 31, 2021, took immediate effect with retrospective application to transactions from June 25, 2018.
  • From January 1, 2022, Cyprus introduced transfer pricing documentation requirements, mandating the preparation of a Master File, Cyprus Local File, and Summary Table for tax resident entities and PEs of non-resident entities in Cyprus involved in related party transactions.
  • Effective December 31, 2022, Cyprus instituted withholding taxes (WHT) on certain payments made to companies in jurisdictions listed on the EU's non-cooperative tax jurisdictions list (EU 'blacklist'). The WHT rates are 17% on dividends from non-quoted companies, 30% on interest payments (excluding those made by individuals), and 10% on royalty and similar payments (excluding individual payments).
  • On November 3, 2023, the legislation mandating the automatic and compulsory exchange of information by Platform Operators was enacted, setting a deadline for the first submissions to the Cypriot Tax Department on or before January 31, 2024. This Law mandates that platform operators automatically exchange specific data, focusing only on particular types of transactions, termed "relevant activities". These activities include (1) the leasing of real estate, (2) provision of personal services, (3) sale of goods, and (4) leasing of any transportation method. Furthermore, the law updates the existing administrative cooperation framework in taxation and modifies the Common Reporting Standard (CRS, also known as DAC2) and DAC6 regulations to align with data protection standards.

Conclusion:

The landscape of Cyprus's tax regime has undergone substantial transformations, marked by a proactive approach towards international tax compliance and the strengthening of anti-avoidance measures. These developments, from expanding double tax treaties to implementing stringent reporting standards, signify Cyprus's resolve to maintain a balanced tax system that is attractive to global investors while adhering to international norms. As Cyprus continues to adapt and refine its tax policies, it stands as a testament to the dynamic nature of tax legislation in responding to global economic trends and regulatory demands.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.