Cyprus has published Laws No. 47(I)/2025 and No. 48(I)/2025 in the Official Gazette on 16 April 2025.

These laws introduce updated defensive measures on outbound payments of dividends, interest, and royalties to non-cooperative or low-tax jurisdictions (“black list”), where the paying and receiving companies are related.

In this case, the receiving company is associated with or related to the other company through 50% direct or indirect ownership. Low-tax jurisdictions are defined as those, where the corporate tax rate is less than 50% of Cyprus’s corporate tax rate, which is 12.5%. (here it means at 6.25%).

The measures also extend to payments made to permanent establishments of non-Cyprus companies located in non-cooperative or low-tax jurisdictions, subject to certain exceptions.

The defensive measures are as follows:

Dividend payments

Dividend payments by Cyprus tax resident companies to incorporated or tax resident companies in non-cooperative or low-tax jurisdictions are subject to a 17% withholding tax, except those with shares listed on any recognized stock exchange.

Interest payments

Interest payments by Cyprus tax resident companies to incorporated or tax resident companies in non-cooperative or low-tax jurisdictions are subject to a 17% withholding tax, except those with shares/securities listed on any recognized stock exchange.

Interest payments made by Cyprus tax-resident companies to affiliated incorporated or tax-resident entities based in low-tax jurisdictions are generally non-deductible. However, an exception applies if the payments relate to securities listed on a recognized stock exchange.

Royalty payments

Cyprus tax resident companies are required to withhold a 10% tax on royalty payments made to associated companies that are either tax residents of, or incorporated in, non-cooperative jurisdictions. Royalty payments made by Cyprus tax-resident companies to affiliated entities in low-tax jurisdictions are ineligible for tax deductions.

If an associated company is incorporated in a non-cooperative or low-tax jurisdiction but is not tax resident there, defensive measures apply unless it is tax resident in another jurisdiction that is not a non-cooperative or low-tax jurisdiction.

Anti-avoidance rule 

An anti-avoidance rule has been introduced as part of the defensive measures, allowing the tax authority to disregard arrangements that lack commercial substance and are primarily designed to avoid these measures. Two ministerial decrees were issued on applying the anti-avoidance rule, including its focus on substance in non-cooperative jurisdictions.

A Cypriot company making payments to another entity without defensive measures must keep supporting documents for at least six years after the tax year of the payments.

Penalty provisions 

Failure to provide required documents within 60 days of a request may result in penalties: EUR 2,000 for delays of 61-90 days, EUR 4,000 for 91-120 days, and EUR 10,000 for delays beyond 120 days or non-disclosure.

If Cyprus has a tax treaty with a non-cooperative or low-tax jurisdiction that prevents withholding tax on dividends, interest, and royalties, Cyprus must renegotiate the treaty within three years.

The defensive measures will take effect on 16 April 2025, for non-cooperative jurisdictions and on 1 January 2026, for low-tax jurisdictions.