On 09.12.2021, the Cyprus House of Representatives passed important amendments to the Income Tax Law and Special Contribution for the Defence Law.
These amendments were published in the Cyprus Government’s Official Gazette on 21.12.2021 and the most important are the following:
The amendments will apply as from 31.12.2022.
The aim of the new amendments is to prevent aggressive tax planning and make the tax framework fairer and more effective.
Additional Corporate Tax residency definition
Currently, pursuant to the Cyprus Income Tax Law, a company is considered to be a tax resident of Cyprus if its management and control is exercised in Cyprus (the “Management and Control Test”).
In order to strengthen the existing tax residency rule framework beyond the Management and Control Test, with this current amendment to the Cyprus Income Tax Law, the term “Cyprus Tax Resident Company” is expanded to include a company that was incorporated/registered in the Republic of Cyprus, but whose management and control is exercised outside the Republic of Cyprus, as long as the company is not a tax resident in any other jurisdiction (the “Incorporation Test”).
The purpose of the additional “Incorporation Test”, is to capture Cyprus incorporated/registered companies that are not tax resident in any other jurisdiction (commonly referred to as “stateless companies”).
Therefore, companies that are incorporated/registered in the Republic of Cyprus and:
Imposition of withholding Tax
A further amendment is the amendment to the Special Contribution for the Defence Law, according to which, Cyprus will now apply Withholding Tax (“WHT”) on outbound payments from a Cyprus company, to a recipient that is a company in an EU blacklisted jurisdiction of dividends and interest.
Up until now, any outbound payment of dividend and interest made by a Cyprus tax resident company to a recipient in a foreign jurisdiction was not subject to withholding tax deduction in Cyprus.
The WHT deduction rates that will apply are, as follows:
The EU list of non-cooperative jurisdictions for tax purposes:
The list adopted by the Council on 24.02.2022 is composed of: