Cyprus has published amendments to the Income Tax Law and the Special Contribution for Defence Law in Official Gazette No. 4867 of 21 December 2021. The amendments to both laws enter into force on 31 December 2022.

Income Tax Law Amendments

Two main amendments are made to the Income Tax Law. The first amendment concerns corporate tax residence. Under the residency rules, a company is considered to be a tax resident in Cyprus if its management and control is exercised in Cyprus, which continues to be the case. The amendment adds an additional rule to provide that a company established or registered under any applicable law in Cyprus, which has its management and control exercised outside Cyprus, is also considered to be a tax resident in Cyprus, unless such company is a tax resident in any other jurisdiction.

The second amendment to the Income Tax Law concerns the 10% withholding tax on royalty income obtained from sources in Cyprus by non-residents not engaged in business in Cyprus. While a general exemption from the withholding tax is provided for royalties granting rights for use outside Cyprus, the amendment adds an additional provision that this exemption does not apply for a non-resident company that is tax resident in a jurisdiction listed by the EU as non-cooperative or registered in a listed jurisdiction and not tax resident in another non-listed jurisdiction.

Special Contribution for Defence Law

The amendments to the Special Contribution for Defence Law include additional provisions in relation to the obligation to pay the contribution on dividend and interest payments where payments are made to non-resident companies in a jurisdiction listed by the EU as non-cooperative or registered in a listed jurisdiction and not tax resident in another non-listed jurisdiction.

For dividends, it is provided that the contribution will be levied at a rate of 17% if the non-resident company directly or indirectly holds more than 50% of the voting rights, capital, or rights to profit in the paying company. However, an exemption is provided for dividends paid in respect of securities (shares) listed on any recognized stock exchange. It is further provided that the relief (refund) from the contribution on deemed distributions for non-resident shareholders does not apply for companies in non-cooperative jurisdictions.

For interest, it is provided that the contribution will be levied at a rate of 30% on payments to companies in non-cooperative jurisdictions. As with dividends, an exemption is provided for interest paid in respect of securities listed on any recognized stock exchange.