For the purpose of fulfilling certain obligations undertaken under the EU Recovery and Resilience Plan, the Cyprus Parliament recently passed amendments to the Cyprus tax legislation, introducing new defensive measures and enhancing existing ones in respect of payments of dividends, interest and royalties to companies in low-tax and/ or in EU-blacklisted jurisdictions.
As from 1 January 2026, payments from Cyprus companies to associated companies in low tax jurisdictions (LTJs) will be subject to the following:
- Dividends: 17% withholding tax
- Interest and royalties: Non-deductibility for tax purposes
An LTJ is defined as a jurisdiction with a corporate tax rate lower than 50% of the Cypriot rate. An associated company is defined as a foreign (non-EU) entity in an LTJ that has a direct or indirect relationship with the Cypriot paying company of at least 50%.
The new defensive measures are in addition to the existing withholding tax provisions relating to payments of dividends, interest and royalties made to entities in EU ‘blacklisted’ jurisdictions (17% on dividends and interest, 10% on royalties), in place since 31 December 2022.
These defensive measures need to be carefully assessed, in order to understand the potential impact and implications on cross-border structures and arrangements, and to proactively plan for needed mitigating steps, including restructuring where appropriate.
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