New anti-abuse decrees issued in March 2026 require Cyprus-resident companies to maintain comprehensive documentation for interest, dividend, and royalty payments to entities in low-tax and non-cooperative jurisdictions, with penalties of up to EUR 10,000 for non-compliance.
Cyprus’ Council of Ministers introduced three decrees (K.D.P. 131/2026, 132/2026, and 133/2026) to combat tax abuse involving payments to low-tax and non-cooperative jurisdictions on 13 March 2026.
These measures, effective from 1 January 2026, require Cyprus companies to maintain detailed documentation when making interest, dividend, or royalty payments to entities in low-tax jurisdictions (LTJs).
LTJs are countries with corporate tax rates below 7.5%—less than half of Cyprus’ 15% rate. Non-cooperative jurisdictions (NCJs) are those listed in the EU’s regularly updated Annex 1. While a complete LTJ list is pending government release, companies must already comply with the documentation requirements.
When documentation is not required
The decrees include five key exemptions:
- The recipient operates in Cyprus, an EU Member State, or the European Economic Area.
- The recipient belongs to a multinational group subject to the 15% minimum tax under EU Directive 2022/2523 or OECD standards.
- The recipient is part of a consolidated group with no presence in blacklisted or low-tax jurisdictions.
- The payment arrangement serves valid commercial purposes reflecting economic reality, not tax avoidance.
- Specific payments to regulated stock exchanges where the payer reasonably doesn’t know the ultimate recipient is in a problematic jurisdiction.
Substance requirements for recipients
When documentation is required, recipient companies must satisfy at least two of these conditions to avoid withholding tax:
- Have at least one board director with qualifications and authority to make decisions about revenue-generating activities.
- Have at least one decision-making director residing in (or commuting distance to) the company’s tax jurisdiction.
- Maintain physical office premises where directors and employees work.
- Hold the majority of board meetings in the company’s tax jurisdiction.
- Pay operating costs (director fees, salaries) proportionate to activities within the tax jurisdiction.
- Demonstrate the company isn’t simply a pass-through entity collecting and immediately transferring dividends while generating minimal taxable profit.
Compliance and penalties
Companies must disclose compliance in their annual tax returns and retain supporting documentation for six years. Tax authorities can request evidence at any time. Failure to provide requested documentation triggers escalating penalties:
- EUR 2,000 for submissions between days 61–90.
- EUR 4,000 for submissions between days 91–120.
- EUR 10,000 for submissions after day 121 or complete non-compliance.
These regulations significantly tighten Cyprus’ anti-avoidance framework by preventing groups from circumventing measures through intermediate companies in acceptable jurisdictions while ultimately routing funds to low-tax destinations.
