Changes to the Income Tax and Special Defence Contribution Laws

The House of Representatives on 9 December 2021 passed amendments to the income tax law and the defence tax law relating to the following: -

1. The definition of tax residency of Cyprus incorporated companies
2. Introducing with-holding taxes on payments of dividends, interest and royalties to a company tax resident in a country included on the European Union (EU) blacklist or to a company incorporated in any of the EU blacklisted countries which is not considered tax resident anywhere.

Up to now a company is considered as tax resident of Cyprus if its management and control is exercised in Cyprus.

In accordance with the new law, 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.

Therefore, there is no longer the possibility to have a Cyprus incorporated company to be considered as non-tax resident in any jurisdiction.

Payments of dividends, interest and royalties to a company which is tax resident in a country included in the EU blacklist or to a company incorporated in a blacklisted country which is not considered as tax resident anywhere will attract certain percentages of tax in Cyprus.

These laws come into force on 31 December 2022.