The House of Representatives in Cyprus, approved a set of amendments to the income tax law and defense tax law on 9 December 2021, relating to

1. the definition of tax and the residency for companies incorporated in Cyprus,
2. the introduction of withholding taxes on payments of royalties, dividends, and interest to a company tax resident in a country included on the EU blacklist or to a company incorporate dinany of the EU back listed countries which is not considered tax resident anywhere.

Both laws are coming into force on December 31^st, 2022.

Until today, a company was considered as tax resident of Cyprus if its management and control is exercised in Cyprus. After this amendment, any company incorporated or registered in Cyprus whose management and control is exercised outside Cyprus will still be considered as tax resident of Cyprus, unless this company is considered as tax resident in any other state. As a result, a Cyprus-incorporated company can no longer be considered not to be tax resident anywhere. Unless a company is tax resident in a country included in the EU black list or if the company is incorporated in a country not included on the list, it is not tax resident in any jurisdiction

Royalties

The 10% withholding tax will apply to royalty payments made to a company that does not have a residence in Cyprus but which has a residence in a country that is included in the EU blacklist of non-cooperative jurisdictions, or to a company incorporated in such a backlisted country which is not tax resident anywhere, regardless of whether the assets for which the royalty is paid will be used in Cyprus or elsewhere.

Dividends

Dividends paid by Cypriot tax resident companies to companies tax resident in countries included in the EU black list of non-cooperative jurisdictions or to companies incorporated in such countries which are not tax residents anywhere will be subject to a 17% special defense contribution (“SDC”).

The above does not apply to companies listed on a recognized stock exchange.

Interests

The SDC rate on interest paid to a company that is not tax resident of Cyprus but tax resident in a country that is listed on the EU blacklist of non-cooperative jurisdictions, or to a company incorporated in one of those countries that is not considered tax resident anywhere, will be 30%.

The above does not apply to interest paid on securities listed on a recognized stock exchange.

Black listed countries

The list is adopted by EU on the 5^th of October 2021 and consists of the below countries

American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu.