+357 2284 6000
+65 6330 6380
Cyprus Introduces defensive tax measures for low-tax and EU blacklisted jurisdictions
Cyprus has implemented a significant change to its corporate tax regime by introducing defensive tax measures on outbound payments of dividends, interest and royalties to related parties located in low-tax and EU blacklisted jurisdictions.
The new rules apply to payments made by Cyprus tax-resident companies to related parties which directly or indirectly control a minimum of 50% of the Cyprus company’s share capital, voting rights or profit entitlement.
In addition, the related party must meet the following conditions for the rules to apply:
- It must be located in an EU blacklisted jurisdiction and not be tax-resident in another jurisdiction which is not on the EU black list; or
- It must be located in low-tax jurisdiction and not be tax-resident in another jurisdiction which is not considered a low-tax jurisdiction.
An EU blacklisted jurisdiction is defined as a jurisdiction which appears on the EU black list during the respective calendar year, as well as the preceding calendar year.
A low tax jurisdiction is defined as one whose corporate tax rate is less than half the Cyprus rate, which is currently 12.5%.
The new rules are summarised below.
Dividends
Dividends paid to related parties located in EU blacklisted or low-tax jurisdictions and which meet the above tests will be subject to 17% Special Defence Contribution.
Interest
Interest paid to related parties located in EU blacklisted jurisdictions and which meet the above tests will be subject to 17% withholding tax.
Interest paid to related parties located in low-tax jurisdictions and which meet the above tests will not be tax-deductible at the Cyprus company level.
However, neither of the above rules will apply if the company receiving the interest is listed on a recognised stock exchange.
Interest payments made by individuals who are tax-resident in Cyprus are not subject to these rules.
Royalties
Royalties paid to related parties located in EU blacklisted jurisdictions and which meet the above tests will be subject to 10% withholding tax.
Royalties paid to related parties located in low-tax jurisdictions and which meet the above tests will not be tax-deductible at the Cyprus company level.
These rules do not apply to royalties paid by individuals who are tax-resident in Cyprus.
Exemption
Payments to companies which are part of a multinational enterprise group, which is subject to tax at the minimum corporate tax rate of 15% under the Pillar 2 / Global Minimum Tax Rules are not subject to the new rules.
Effective dates
For payments to companies located in EU blacklisted jurisdictions, the rules came into effect on 16 April 2025.
For payments to companies located in low-tax jurisdictions, the effective date for the new rules will be 1 January 2026.
Reporting obligations
Any company which pays dividends, interest or royalties, which are subject to the new rules, is obliged to notify the Tax Commissioner of such payments and to certify that the recipient meets a number of onerous substance requirements.
International structuring implications
These changes have major implications for international structuring, financing and IP planning involving Cyprus. Businesses with cross-border transactions should assess their current structures for compliance with the new rules.
Posted 23 June 2025