- Dividends: Payments by a Cyprus company to an associated entity in a non-cooperative or low-tax jurisdiction are subject to a 17% withholding tax. (This WHT applies only when the recipient is tax-resident in an NCJ/LTJ and there is a ≥50% link between the entities.)
- Interest: Interest payments to associated entities in non-cooperative jurisdictions incur a 17% WHT. By contrast, interest paid to an associated entity in a low-tax jurisdiction (effective tax rate <6.25%) is not deductible for Cyprus tax purposes.
- Royalties: Royalty payments to associated entities in non-cooperative jurisdictions carry a 10% WHT. Royalties paid into a low-tax jurisdiction are not deductible from the Cyprus payer’s income.
Because the new rules apply only between “associated” parties, companies should carefully map their ownership and control chains. The Cyprus Tax Department may ignore or recharacterize any arrangement that lacks genuine economic substance and was entered into mainly to avoid withholding tax. In practice, payers must retain full documentation of any dividends, interest or royalties paid to related foreign entities for six years. If a Cyprus payer fails to provide the required documents, strict penalties apply: fines range from €2,000 (short delay) up to €10,000 for non-compliance. (These documentation rules generally apply unless the recipient is Cypriot- or EU/EEA–resident, part of a multinational group taxed at ≥15% under the global minimum tax, or in a consolidated group with no operations in blacklisted countries.)
Cyprus’s law explicitly references the EU’s List of Non-Cooperative Jurisdictions, so taxpayers must watch for changes. Since the blacklist is updated periodically, a jurisdiction’s status (and thus the tax treatment of payments to it) could change at any time. In summary, affected businesses should review all outbound dividend, interest and royalty flows and the residency of each counterparty. Companies should review their cross-border structures and payment chains. In particular, Cyprus-resident entities should:
- Identify any dividend, interest or royalty payments to jurisdictions now designated as non-cooperative or low-tax.
- Determine whether recipient entities are “associated” (e.g. ≥50% owned or controlled by the payer, directly or indirectly).
- Calculate potential new withholding tax obligations and limits on deductibility under the law.
- Ensure foreign entities have real economic substance and maintain documentation (books, contracts, tax residency certificates, etc.) for at least six years.
- Monitor developments – including upcoming treaty renegotiations and updates to the EU blacklist – as changes may immediately affect Cyprus tax compliance.
At Rosemont International, we provide tailored tax advisory services to help clients navigate the impact of Cyprus’s Law 47(I)/2025. Our multidisciplinary team supports private individuals, corporate groups, and advisors in reviewing international structures, identifying exposure to non-cooperative and low-tax jurisdictions, and implementing compliant, tax-efficient solutions. Whether you need to restructure ownership links, validate economic substance, assess withholding tax exposure, or prepare robust documentation, Rosemont offers strategic insight and ongoing compliance support to safeguard your cross-border operations.
For more information, please contact office@rosemont-mc.com
Sources: Cyprus Law 47(I)/2025 (Official Gazette 16 Apr 2025) and explanatory tax analyses