Cyprus tax measures expected in 2021

On 22 October 2020, the Cyprus Council of Ministers announced certain tax measures to address aggressive tax planning. These measures follow Country Specific Recommendations (CSR) made to Cyprus by the European Commission.

WHT to non-cooperative jurisdictions

Currently, Cyprus does not impose any withholidng taxes on outbound payments of dividends, interest and royalites (unless they are used in Cyprus). The propose measure shall introducte a withholding tax on any dividends, interest and royalty payments to countries included in Annex I of the EU list of non-cooperative jurisdictions on tax matters. Currently, the list includes the following countries: American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu, Seychelles).

Incorporation test for tax residency

Currently, a company is considered tax resident of Cyprus if its ‘management and control’ is exercised in Cyprus. The proposed measure shall introduce a corporate tax residency test based on incorporation, in addition to the existing ‘management and control’.

The purpose of this measure is to expand the definition of ‘tax resident of Cyprus’ to include companies which are incorporated in Cyprus but whose management and control is exercised outside of Cyprus, unless such companies are tax resident in any other state (other than the states included in Annex I of the EU list of non-cooperative jurisdictions on tax matters).

The above bills have been sent to the Attorney General’s office for legal vetting. Once cleared, they will be submitted to the House of Representatives for voting.

Spontaneous exchange of information

In order to address the EU wide concerns that the Cypriot ‘Citizenship’ and ‘Residence by investment’ schemes may circumvent the Common Reporting Standard initiative (CRS), Cyprus is in the process of developing a mechanism to enable the spontaneous exchange of information about individuals that have obtained residence rights through the Citizenship by Investment” and “Residence by Investment” programmes with all original jurisdictions of tax residence.

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