Amendments of the Cyprus Tax Laws
The House of Representatives of Cyprus has recently approved amendments in a number of a Cyprus tax laws, the focus of which is on corporate practices connected with low-tax jurisdictions and jurisdictions which are classifed as high risk by the European Union.
The new provisions are applicable to legal or natural person who are receiving interest/ dividend/ royalty income from companies whose tax residency or place of incorporation are either in low tax jurisdictions or high riks jurisisdictions.
The amendments with respect to low tax jurisdictions will come into effect as from 1 January 2026 while the amendments to the provisions regarding the high risk jurisdictions have entered into force as of the 16 April 2025.
More specifally the following laws were amended:
The Income Tax Law of 2002
- Introduction of a definition of low tax jurisdiction in accordance with section 2 of the Income Tax Law).
- Introduction of the definition of the non-low tax jurisdiction in accordance with section 2 of the Income Law).
- Introduction of the definition of high riks jurisdictions in accordance with section 2 of the Income Tax Law.
- Introduction of a nondeducibility clause in accordance with section 11 of the Income Tax Law).
- Introduction of the taxation of IP and similar rights clause (section 21 of the Income Tax Law).
- Introduction of obligations for the renegotiations of treaties (section 34 of the Income Tax Law).
The Special Defence Contribution Law of 2002
- Payment of dividends to an entity which is tax resident and/or registered or incorporated in a a low tax jurisdiction will be subject to a 17% special defence contribution tax provided that this entity is not considered tax resident in a non-low tax jurisdiction or a non high risk jurisdiction or is incorporated in a high risk jurisdiction (section 3(2)(a1) of the Special Defence Contribution Law of 2002.
- Payment of dividends to a permanent establishment (PE) of a low tax jurisdiction non-Cypriot entity or of a high risk entity would be also subject to a 17% SDC (section 3(2)(a1) of the Special Defence Contribution Law.
- Payment of interest or the crediting of interest from Cyprus sources to an entity which is either registered or incorporated in a jurisdiction which is considered high risk and/or to an entity which is not considered tax resident in any other high risk jurisdiction would be subject to a 17% special defence tax, (section 3(2)(b1) of the Special Defence Contribution Law.
- Payment of interest or the crediting of interest from Cyprus sources to a non-Cypriot’s tax resident entity’s PE in a high riks jurisdiction would be subject to a 17% sepcial defence contribution law (section 3(2)(b1) of the Special Defence Contribution Law).
The Assessment and Collection of Taxes Law of 1978
The amendments under the Assesement and Collection of Taxes Law stipulate the penalties that will be applicable in the event that the paying entities in Cyprus fail to provide the Cyprus tax authorities with the information that is stipulated by law.
More specificlaly
- section 50H(1)(a) of the Assesement and Collection of Taxes Law
- section 50H(1)(a) of the Assesement and Collection of Taxes Law
- A penalty of EUR 2,000 would apply if the Cyprus paying entity fails to comply for the period between 61-90 days in accordance with the provisions of A penalty of EUR 4,000 is applicable if the Cyprus paying entity fails to comply within the stipulated time frame in accordance with the provisions of section 50H(1)(b) of the Assesement and Collection of Taxes Law.
- A penalty of EUR 10,000 would apply if the Cyprus paying entity fails to comply for the period which exceeds 121 days or complete non-compliance in accordance with the provisions of section 50H(1)(c) of the ACT Law).