The Cyprus House of Representatives approved legislation, on 10 April, introducing defensive measures against payments made to entities resident in low-tax jurisdictions in addition to existing measures against countries included on the EU blacklist of non-cooperative jurisdictions (Annex I).
Low-tax jurisdictions are defined as having a corporate tax rate that is lower than 50% of the Cyprus corporate tax rate, currently 12.5%. Blacklist jurisdictions are those included on the EU blacklist at the time of the relevant transaction and in the previous calendar year.
The defensive measures will be as follows:
- The 17% dividend withholding tax currently applicable to blacklist jurisdictions will also be applicable to entities resident in low-tax jurisdictions.
- Interest and royalty payments made to associated companies in
low-tax jurisdictions will not be deductible for corporate tax
purposes.
- A general anti-avoidance rule (GAAR) will operate to disregard transactions that lack a valid commercial purpose.
The new measures will generally apply as from 16 April 2025, but the measures applicable to low-tax jurisdictions will apply as from 1 January 2026.
Cyprus said it will renegotiate double tax treaties with countries that are low-tax jurisdictions or included on the EU blacklist that do not grant taxing rights allowing the imposition of withholding tax in Cyprus as stipulated in the amendments.
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