The Cyprus Tax Department formally designates eleven territories — from the Cayman Islands to Vanuatu — as low-tax jurisdictions, triggering withholding taxes and deductibility restrictions on payments flowing to these destinations from 1 January 2026.
Cyprus Tax Department issued Circular 1/2026 on 9 April 2026, which formally establishes the list of jurisdictions classified as low-tax jurisdictions for the 2026 tax year. This circular is a critical component of Cyprus’s implementation of defensive tax measures aimed at transactions involving jurisdictions with significantly lower taxation than Cyprus.
A jurisdiction is generally considered “low-tax” if its income tax rate is less than 7.5%. This threshold is calculated as half of the 15% corporate tax rate that applies in Cyprus as of 2026.
Identified low-tax jurisdictions
The circular identifies 11 jurisdictions under this category for 2026:
- Anguilla
- Bahamas
- Bahrain
- Bermuda
- British Virgin Islands (BVI)
- Cayman Islands
- Guernsey
- Isle of Man
- Jersey
- Turks and Caicos Islands
- Vanuatu
Defensive measures for low-tax jurisdictions
Effective from 1 January 2026, payments made to entities in these jurisdictions are subject to specific defensive measures. Interest and royalty payments made to these jurisdictions are generally not tax-deductible for the payer in Cyprus. A 5% Special Defence Contribution (SDC) withholding applies to dividend payments.
Low-tax and non-cooperative jurisdictions
While the 11 jurisdictions above meet the “low-tax” criteria, higher defensive measures apply to jurisdictions on the EU list of non-cooperative jurisdictions. For these, the withholding tax rates are significantly steeper: 17% on dividends and interest, and 10% on royalties.
Based on the circular’s guidance provided in your query, there are important distinctions for specific territories:
- Anguilla and Vanuatu: Although they are low-tax, they remain on the EU non-cooperative list. Consequently, they are subject to the stricter 17%/10% measures rather than the standard low-tax measures for 2026.
- Turks and Caicos Islands: Despite being added to the EU non-cooperative list in February 2026, this circular currently maintains its status only as a low-tax jurisdiction, meaning the 5% SDC withholding and non-deductibility rules apply rather than the higher non-cooperative rates for this period.
