Cyprus has taken another step toward aligning itself with international tax standards, introducing new withholding tax rules that could reshape how multinational businesses use the island in their international structuring.
On April 16, 2025, the Cypriot Parliament enacted Law 47(I)/2025, tightening the rules for payments made to associated entities in so-called low-tax or non-cooperative jurisdictions. The move is seen as part of Cyprus’s ongoing effort to modernize its tax regime and strengthen its position as a reputable business hub within the EU.
What’s Changing?
The new law imposes withholding tax (WHT) on outbound payments of dividends, interest, and royalties made by Cyprus-resident companies to related parties in jurisdictions with very low or no corporate income tax. These include:
- 17% WHT on dividends
- 30% WHT on interest and royalties
The rules apply where payments are made to associated entities—defined broadly as those with over 50% ownership or control links—in non-cooperative jurisdictions (as listed by the EU) or low-tax jurisdictions (LTJs), defined as countries with corporate income tax below 6.25% (i.e., less than half of Cyprus’s current 12.5% rate).
Examples of Affected Jurisdictions
Non-Cooperative Jurisdictions (NCJs) (based on the EU blacklist) include:
- Panama
- Russia
- Bahamas
- Trinidad and Tobago
- Vanuatu
- Palau
- U.S. Virgin Islands
Low-Tax Jurisdictions (LTJs)—though not blacklisted—could include countries such as:
- United Arab Emirates (0–9%)
- Barbados (5.5%–9%)
- Qatar (10%)
- Isle of Man (0%)
- Jersey (0%)
- Guernsey (0%)
- British Virgin Islands (BVI) (0%)
- Cayman Islands (0%)
(Note: The LTJ list is determined based on effective corporate tax rates and will depend on how Cyprus applies the threshold in practice. Further clarification is expected in the upcoming Tax Department circular.)
Why This Matters
For years, Cyprus has marketed itself as a legitimate, EU-based jurisdiction for international structuring. These new measures show a clear intent to combat aggressive tax planning and align Cyprus with OECD and EU standards—without undermining its core tax incentives.
From a policy standpoint, the law serves multiple objectives:
- Boosting credibility: Aligning with EU standards helps Cyprus avoid being seen as a soft touch for tax evasion schemes.
- Protecting the tax base: Preventing base erosion through payments to zero- or ultra-low-tax jurisdictions.
- Maintaining EU goodwill: Staying off the radar of EU blacklists and avoiding reputational damage.
What It Means for Businesses
Companies using Cyprus as a regional or global holding jurisdiction should take notice. While the law only targets specific outbound flows, it may impact the deductibility of expenses and the efficiency of certain holding structures. For groups with legacy structures in blacklisted or low-tax jurisdictions, the financial impact could be significant.
Yet, for those playing by the rules, this move should be seen as a step toward stability. It reinforces Cyprus’s credibility as a serious jurisdiction for international business—not a risky shortcut.
What’s Next?
The Cyprus Tax Department is expected to issue a detailed circular clarifying the scope, application, and administrative procedures of the law. Until then, businesses would be wise to proactively assess their exposure.
What Should You Do Now?
If your structure involves jurisdictions with low or no tax, now is the time to act. Royal Pine’s team of advisors is available to help you assess exposure, redesign affected structures, and stay one step ahead of the changes.
Let’s discuss how to protect the integrity—and tax efficiency—of your operations in Cyprus.
Contact our advisory team today to book a planning session.
* This publication is intended as a general guide for informational purposes only. It does not purport to be comprehensive or to render professional advice. Before making any decision or taking any action that may affect you or your business, bespoke advice should be obtained.
