Cyprus has amended the Income Tax Law and the amendments will be implemented as from 31 December 2022.
- Additional Cyprus corporate tax residency test
Currently only companies that are “managed and controlled” from Cyprus are considered tax residents of Cyprus as per the Income Tax Law (ITL). The new amendment does not change this rule.
The change relates to companies incorporated or registered in Cyprus and “managed and controlled” from outside of Cyprus. With the amendment they will also be considered tax resident in Cyprus provided they are not tax residents of any other jurisdiction.
The amendment eliminates the possibility for a Cyprus incorporated/registered company to be considered non-tax resident in Cyprus, whilst not being tax resident in any other jurisdiction. The change does not affect our clients as their companies are all tax resident in Cyprus.
2. Withholding tax is introduced for payments to companies in EU blacklisted jurisdictions.
Up to now any outbound payment of dividend, interest and royalty payment made by a Cyprus tax resident company to a recipient in a foreign jurisdiction was not subject to withholding tax (WHT) deductions in Cyprus.
With the amendment of the ITL a Withholding tax (WHT) will be introduced when the direct recipient of the dividends, interest and royalties is a company registered or tax resident in an EU-blacklisted jurisdiction.
A WHT of 17% (Special Defence Contribution) is introduced for dividends paid by Cyprus tax resident companies to companies in EU blacklisted jurisdiction where the direct recipient holds directly more than 50% of the capital, votes or entitlement to profit.
A WHT of 10% on royalties and a WHT of 30% for passive interest payments is further introduced for payments to companies in EU blacklisted jurisdictions.
The EU black list consists of American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu so the above change does not affect our clients with shareholders that are mainly resident in EU countries.