Country Correspondent: Athina Stephanou

On 21/12/2021 Cyprus passed 2 new amending laws that will apply as from 31/12/2022. The purpose of the 2 amending laws is to apply measures against non-cooperative jurisdictions, as collectively decided by EU Member States, and to close any paths for exploitation of laws. The EU list of non-cooperative jurisdictions for tax purposes is a tool to tackle:

• Tax fraud or evasion: illegal non-payment or under payment of tax

• Tax avoidance: use of legal means to minimise tax liability

• Money laundering: concealment of origins of illegally obtained money

It lists non-EU countries that encourage abusive tax practices, which erode member states' corporate tax revenues.

The following amendments to the tax laws have been made:

1.       A company established under the Laws of the Republic, with management and control outside the Republic, will be considered tax resident of the Republic unless the company is tax resident in another State.

2.       Income derived from intellectual property by a non-resident, from the use of rights outside the Republic, will not be income totally exempt from Income Tax Law, if the income is earned by a company resident in a third country that has been collectively by MS, included in the list of non-cooperative jurisdictions for tax purposes. The same applies if the recipient company has been incorporated in a country considered as non-cooperative jurisdiction and is not a tax resident in another country not included in the list and the income is not received from an individual.

In such a case withholding tax of 10% applies.

3.       A non-resident company in Cyprus that is a resident in a country included in the list of non-cooperative jurisdictions, or has been incorporated in a non-cooperative jurisdiction and is not a tax resident in another state that is not included in the list, is taxed through withholding on any dividend received, without exception, at 17% for Special Contribution for Defense (SCD). This will apply provided the company receiving the dividend participates directly alone or with other related companies who are non-residents of the Republic and are resident in other jurisdictions included in the list of non-cooperative jurisdictions or have been incorporated in such country and are not tax residents in other countries not included in the list and directly participates in the company resident in the Republic that pays the dividend with % over 50%. If the paying the dividend company is listed on any recognized stock exchange the above provision does not apply. Hence if listed withholding tax nil.

4.       A non-resident company in Cyprus that is a resident in a country included in the list of non-cooperative jurisdictions, or has been incorporated in a non-cooperative jurisdiction and is not a tax resident in another state that is not included in the list, is taxed at 10% SCD through withholding, on any interest received or credited that arose from sources within the Republic, provided the interest is not derived from an individual. If the paying the interest company is listed on any recognized stock exchange the above provision does not apply. Hence in such a case the withholding tax is nil.

5.       Any SCD deducted as a result of notional distribution relating to a non-resident company that falls under paragraph 3 above, is not refunded.

6.       The list of non-cooperative jurisdictions adopted by the Council on 5 October 2021 is composed of:

·         American Samoa

·         Fiji

·         Guam

·         Palau

·         Panama

·         Samoa

·         Trinidad and Tobago

·         US Virgin Islands

·         Vanuatu