Cyprus takes defensive tax measures against low-tax and ‘blacklisted’ jurisdictions

The Cyprus House of Representatives approved legislation, on 10 April, introducing defensive measures against payments made to entities resident in low-tax jurisdictions in addition to existing measures against countries included on the EU blacklist of non-cooperative jurisdictions (Annex I).

Low-tax jurisdictions are defined as having a corporate tax rate that is lower than 50% of the Cyprus corporate tax rate, currently 12.5%. Blacklist jurisdictions are those included on the EU blacklist at the time of the relevant transaction and in the previous calendar year.

The defensive measures will be as follows:

• The 17% dividend withholding tax currently applicable to blacklist jurisdictions will also be applicable to entities resident in low-tax jurisdictions.
• Interest and royalty payments made to associated companies in low-tax jurisdictions will not be deductible for corporate tax purposes.
  • A general anti-avoidance rule (GAAR) will operate to disregard transactions that lack a valid commercial purpose.

The new measures will generally apply as from 16 April 2025, but the measures applicable to low-tax jurisdictions will apply as from 1 January 2026.

Cyprus said it will renegotiate double tax treaties with countries that are low-tax jurisdictions or included on the EU blacklist that do not grant taxing rights allowing the imposition of withholding tax in Cyprus as stipulated in the amendments.