On 9 December 2021, the Cyprus Parliament voted to pass into law two bills for amending the Cyprus tax legislation, with the purpose of strengthening the Cyprus tax framework for the prevention of tax abuse, tax evasion and tax avoidance. Each of the bills state that they will enter into force on 31 December 2022.
The bills contain the following developments:
1. For payments from Cyprus to companies in jurisdictions in the EU ‘blacklist’ (i.e. companies in jurisdictions included in Annex I of the EU list of non-cooperative jurisdictions for tax purposes), withholding taxes (WHTs) are introduced (or, in the case of royalties, expanded) as follows:
- for payments of dividends by non-quoted companies, WHT at the rate of 17%, to shareholders with an “over 50% holding”;
- for payments of passive interest (excluding payments by individuals), WHT at the rate of 30%;
- for payments of royalties and similar type payments (excluding payments by individuals), WHT at the rate of 10%.
2. The Cyprus corporate tax residency test (currently the ‘management and control’ test) is expanded with the introduction of a test based on incorporation/registration in Cyprus, for companies that do not have a tax residency anywhere else in the world.
The bills will need to be published in the Government’s Gazette in order to complete the legal process of being passed into law.
More details may be found in our newsletter N-38-2021