Withholding Taxes

Withholding Tax Rates Summary

Dividends to Non-Residents

Non-residents receiving dividend income sourced in Cyprus are generally exempt from withholding tax (WHT), which is a favorable provision for foreign investors. However, anti-avoidance rules apply when dividends are paid to entities in low-tax jurisdictions or blacklisted jurisdictions, in which case the following rules apply:

• Low-Tax Jurisdictions: Decrease WHT has been reduced from 17% to 5% on dividends paid to associated companies in low-tax jurisdictions (CIT rate less than 7.5%, i.e. less than 50% of the Cyprus CIT rate).
• Blacklisted Jurisdictions: WHT remains at 17% on dividends paid to associated companies in jurisdictions on the EU’s non-cooperative tax list.

Constructive (Disguised) Dividends New from 2026

The 2026 reform introduces the concept of “disguised dividends” for direct and indirect shareholders who are natural persons (Cyprus tax resident and domiciled). Where a Cyprus company provides benefits, assets, or payments to such shareholders (or persons related to them) that are not at arm’s length, the excess amount is treated as a constructive dividend subject to SDC at 10% — double the normal 5% SDC rate on dividends.

• Applies to Cyprus tax resident and domiciled individuals who are direct or indirect shareholders
• The company is responsible for withholding and remitting the 10% SDC
• The company must issue a certificate to each shareholder specifying dividend amounts, disguised dividend distributions, SDC withheld, and the fiscal year of underlying profits
• Amounts already subjected to SDC as disguised dividends reduce the amount of any subsequent actual dividend subject to SDC
• “Related person” for these purposes is defined per Article 33 of the ITL; however, assets used by a shareholder on which SDC has already been charged under the disguised dividend provisions are excluded from the application of Art. 33
• No refunds of SDC charged under the disguised dividend provisions are possible

Interest Payments to Non-Residents

Cyprus does not impose withholding tax on interest payments to non-residents under the Income Tax Law. This applies regardless of whether a Double Tax Treaty exists, making Cyprus an attractive jurisdiction for international financing arrangements. However, anti-avoidance rules operate through different mechanisms for payments to low-tax and blacklisted jurisdictions:

• General Non-Residents: 0% WHT. No conditions — interest paid to non-resident individuals or companies is not subject to Cyprus WHT. The EU Interest & Royalties Directive also provides an additional exemption framework for intra-group EU payments.
• BLJ-Related Companies: While no WHT applies under the ITL, interest earned from Cyprus sources by related companies in non-cooperative (EU blacklisted) jurisdictions is subject to 17% SDC on the gross interest under the Special Defence Contribution Law.
• LTJ-Related Companies: 0% WHT and no SDC, but the interest is non-deductible for the Cyprus payer under Article 11(17) of the ITL. This effectively penalises the payer rather than the recipient. The non-deductibility applies where the recipient is a related company (direct/indirect >50% participation in voting rights, capital, or profit entitlement).

Income from Intellectual Property and Royalties

Non-residents earning income from intellectual property rights, exploitation rights, and similar incomes sourced within Cyprus are subject to a 10% withholding tax, though tax treaties may reduce this rate. Royalties paid to entities in EU Member States may be exempt from withholding tax under specific conditions. Additionally, rights granted for use outside of Cyprus are not subject to withholding tax.

Royalties WHT — Non-Cooperative Jurisdictions New from 2026

Under the newly introduced Article 21A of the Income Tax Law, a 10% withholding tax applies on royalty payments made to non-Cyprus residents that are incorporated in a non-cooperative jurisdiction (EU blacklisted) and are not tax resident in another non-blacklisted jurisdiction.

• The WHT applies to royalties paid to entities incorporated/registered in non-cooperative jurisdictions
• The obligation does NOT apply if the payment has already been subject to tax under Article 21 of the ITL (general royalties WHT)
• Individual payer exclusion: The obligation does NOT apply where the royalty payment is made by an individual (Art. 21A(2)) — it applies only to payments made by companies
• The payer (Cyprus entity) is responsible for withholding and remitting the tax
• Certain exceptions may apply — companies should verify with their tax advisor

Film Royalties

Non-resident individuals earning from film royalties within Cyprus are taxed at a withholding rate of 5%, subject to adjustments per applicable tax treaties. Similar to other royalty incomes, exemptions may apply when the recipient is an entity in an EU Member State, meeting certain criteria.

Income from Oil & Gas Related Activities

Income derived by non-residents from activities related to the extraction, exploration, or exploitation of natural resources in Cyprus is taxed at a withholding rate of 5%. This encompasses services associated with the continental shelf, subsoil, and related installations, with possible reductions through tax treaties.

Income from Technical Assistance

Technical assistance provided within Cyprus by non-residents incurs a 10% withholding tax, unless the services are rendered through a permanent establishment in Cyprus, in which case the income is exempt from withholding tax.

Non-Resident Professional Fees WHT

A 10% withholding tax applies to payments for professional services and entertainment rendered in Cyprus by non-residents (Art. 23 ITL). This is a long-standing provision of Cyprus tax law covering income earned by non-resident professionals, entertainers, sports teams, and similar performers from activities carried out in Cyprus.

• Payer Responsibility: The payer (Cyprus entity) is responsible for withholding and remitting the tax to the Tax Department.
• Scope: The WHT covers fees for services performed on Cyprus soil by non-resident individuals and entities, including professional consultancy, entertainment services, and similar activities.
• Treaty Relief: Treaty relief may reduce or eliminate the WHT. Non-residents should verify whether a Double Tax Treaty between Cyprus and their home country provides for reduced or nil rates on professional service fees.

Treaty Relief Procedures

Non-residents can claim reduced withholding tax rates under applicable Double Tax Treaties (DTTs) between Cyprus and the country of the recipient. Cyprus maintains a wide network of over 65 Double Tax Treaties that provide framework for reduced or nil WHT rates on dividends, interest, royalties, and other income categories.

To claim treaty relief, the non-resident must typically provide:

• A Certificate of Tax Residence from their home country’s tax authority, confirming their tax resident status;
• A beneficial ownership claim form, certifying that the recipient is the true owner of the income (not acting as an intermediary).

Relief can be claimed in two ways:

• At Source: The withholding agent (payer) applies the reduced treaty rate directly if the required documentation is submitted beforehand;
• Via Refund: If tax was withheld at the standard rate, the non-resident can apply for a refund to the Cyprus Tax Department with supporting documentation.

Treaty Renegotiation Provisions New from 2026

Under Article 34 of the Income Tax Law, where Cyprus maintains Double Tax Treaties with jurisdictions classified as non-cooperative (BLJ) or low-tax (LTJ), and those treaties do not grant Cyprus the right to impose withholding tax on dividends (for both LTJ and BLJ) or interest and royalties (for LTJ), Cyprus will notify the other contracting state within three years to initiate treaty renegotiation.

EU Interest and Royalties Directive

Interest and royalty payments between associated EU companies are exempt from withholding tax under EU Council Directive 2003/49/EC, as transposed into Cyprus law. This directive provides significant tax relief for intra-group payments within the EU, facilitating cross-border financing and IP licensing arrangements.

To qualify for the exemption, the following conditions must be met:

• Associated Companies: The recipient company must own at least 25% of the payer company (or vice versa), directly;
• EU Tax Residency: Both the payer and recipient must be EU tax resident;
• Income Type: The payment must constitute interest or royalties as defined in the Directive.

Payment and Penalties for Withholding Tax

Withheld taxes on payments to non-residents must be remitted to the Tax Department by the end of the month following the payment. Delays in payment may attract interest and penalties, emphasizing the importance of timely tax compliance.

These diverse rules cater to different categories of income, providing a structured tax regime that aligns with international standards and addresses the specificities of various types of incomes and activities within Cyprus.

Disclaimer

Please note that the information provided here is for general guidance only and does not constitute professional tax advice. Tax laws and interpretations are subject to change, and individual circumstances can significantly affect tax obligations and benefits.

Contact Us

For personalized tax advice tailored to your specific situation, we strongly recommend consulting with a qualified tax professional. Our team is equipped with the expertise to navigate the intricacies of Cyprus tax law and provide you with customized solutions. Contact us to ensure that you are making the most informed decisions for your tax-related matters.