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If your company is based in Cyprus and works with related businesses overseas – especially in low-tax countries – you’ll want to pay attention to some new tax rules that just came into effect. These changes are part of Cyprus’s effort to increase transparency and crack down on aggressive tax planning, in line with EU standards.
Here’s a simple breakdown of what’s happening and what it could mean for your business.
Why This Matters to You
As of April 16, 2025, Cyprus has put new rules in place that:
- Make it harder to send money to related entities in certain low-tax or non-cooperative jurisdictions,
- Introduce new taxes or remove deductions on some cross-border payments,
- Add stricter rules on proving your international operations are legitimate.
If your company sends dividends, interest, or royalties to a related company abroad, these rules likely apply.
Which Countries Are Affected?
The new measures impact payments made to companies located in:
- Low-Tax Jurisdictions (LTJs) – countries where corporate tax is less than half the Cyprus rate (under 6.25% right now), or
- Non-Cooperative Jurisdictions (NCJs) – countries listed by the EU as not cooperating on tax matters.
Important: These rules apply only if you’re dealing with a related company – meaning there’s shared ownership or control (over 50%).
What Kind of Payments Are Impacted?
Here’s what’s changing depending on the type of payment:
1. Dividends
- If paid to LTJs or NCJs: 17% withholding tax applies.
- Exception: No tax if the recipient pays at least 15% corporate tax in their country.
2. Interest
- To NCJs: 17% withholding tax.
- To LTJs: You can’t deduct the expense for tax purposes.
3. Royalties
- To NCJs: 10% withholding tax.
- To LTJs: Not deductible for corporate tax.
Also, if you’re sending payments through a permanent establishment in one of these countries, the rules still apply – even if the parent company isn’t based there.
No Room for Tax Tricks
Cyprus is introducing a General Anti-Abuse Rule (GAAR) to stop companies from setting up structures just to avoid tax. If a transaction lacks real business purpose – like using a shell company with no staff or operations – the Tax Department can ignore it and apply the tax rules as if the structure didn’t exist.
So, if you’re working with related companies abroad, you’ll need to prove your operations are real. This means showing local offices, employees, costs, and actual activity.
What About Tax Treaties?
If Cyprus has a Double Tax Treaty (DTT) with one of these low-tax or non-cooperative countries – and that treaty blocks Cyprus from taxing payments like dividends or royalties – Cyprus is now required to renegotiate the terms within three years.
When Does All This Start?
- Already in effect: Most new rules, including withholding taxes, started April 16, 2025.
- Starting January 1, 2026: Two key changes kick in – non-deductibility of payments to LTJs, and the requirement to renegotiate certain tax treaties.
What You Should Do Now
If your business makes cross-border payments to related entities, here are a few smart next steps:
- Review your group structure – Are any payments going to LTJs or NCJs?
- Assess your partners – Do they meet the new substance requirements?
- Update your documentation – Make sure you have a solid business reason for each payment.
- Plan ahead – Some treaties may change, so be prepared for tax implications.
These changes are here to stay. Cyprus is tightening its tax rules, and businesses need to adapt. If you’re unsure how this affects you or need help with compliance, now’s the time to get advice and act.
Let’s talk if you’d like to review your setup or need help navigating the changes. Contact us now!
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