On 9 December 2021, the Cyprus Parliament approved the expansion of the definition of corporate tax residency for Cyprus companies to additionally include the incorporation test.
As per current law, a Cyprus company is considered a Cyprus tax resident if the management and control are exercised in Cyprus. With, the new law, and the introduction of the incorporation test, if a Cyprus company is not managed and controlled in Cyprus and is not a tax resident of another country it will be considered as a tax resident of Cyprus as it was incorporated in Cyprus. This will apply from 31 December 2022.
Withholding tax payments of dividends, interest and royalties from Cyprus companies to companies resident or registered in jurisdictions included in the EU list of non-cooperative jurisdictions on tax matters.
On the same date as above and applying from 31st December 2022 as well, another law was approved whereby 17% withholding tax will apply If a Cyprus tax resident company pays dividends to:
- a company which is a resident in a jurisdiction that is included on the EU List of non-cooperative jurisdictions on tax matters (black list see link: https://www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions/),
- or to a company incorporated or registered in a jurisdiction included on the EU Black List and not considered to be tax resident in another jurisdiction which is not included on the EU Black List,
For the above to apply the company (or associated companies alone or collectively ) of the EU Black List countries must own more than 50% participation or more than 50% voting rights, or more than 50% share capital, or is entitled to more than 50% of the profits of the Cypriot company paying the dividend. This does not apply for dividends paid from companies listed in a recognized Stock exchange. In line with the above provisions, tax withheld under Deemed dividend distribution rules of the Special Defence Contributions Law, no refund of tax withheld will be provided to non-resident shareholders included in the EU List.
Interest payments (or credited) will also be subject to a withholding tax at the rate of 30% if:
- paid or credited to a company which is resident in a jurisdiction included on the EU List as above,
- or to a company which is incorporated or registered in a jurisdiction included on the EU List and is not resident in another jurisdiction that is not included on the EU List.
This is provided the interest is derived from sources within Cyprus.
The above will not apply to any interest payments made by an individual or interest received by or credited to a company of the EU List which was paid from securities, bonds debentures, etc listed on a recognized stock exchange.
Royalty payments will be subject to 10% withholding tax if paid to:
- to a company of a jurisdiction included on the EU List (see link above),
- or to a company which is incorporated or registered in a jurisdiction included on the EU List and is not resident in another jurisdiction that is not included on the EU List,
The above does not apply to any royalty payments made by an individual.