The law introduced rules on the non-deductibility of certain expenses (interest and royalty payments) and withholding tax obligations on payments made by Cyprus tax resident entities to associated entities located in LTJ or BLJ.
LTJ are jurisdictions with a corporate tax rate lower than half of Cyprus’s tax rate (currently 12.5%)
BLJ are jurisdictions listed on the EU’s non-cooperative 3rd countries for Tax purposes
For the measures to apply, the payment must be made to a company that has a direct or indirect association with the Cypriot company making the payment, where this association exceeds 50%, either alone or together with other associated persons.
The table below summarises the rules:
| Outbound payment | Recipient – BLJ currently in force | Recipient – LTJ in force 1/1/2026 |
|---|---|---|
| Interest | 17% withheld tax | Deduction disallowed |
| Dividends | 17% withheld tax | 17% withheld tax |
| Royalties | 10% withheld tax | Deduction disallowed |
The rules extend to payments made to permanent establishments (PEs) in LTJ or BLJ, regardless of where the Head Office company is tax resident, provided the payments are attributed to the PEs.
Under the new provisions, where Double Tax Treaties (DTTs) between Cyprus and LTJ or BLJ exist, the DTT provisions override the legislation, however, Cyprus will commence renegotiation proceedings of the DTT within 3 years.
Cyprus companies must retain relevant documentation for dividend, interest and royalty payments to jurisdictions where no tax was withheld for 6 years, including evidence of the recipient’s tax residency or tax liability. The legislation provides for fines of up to €10,000.
General Anti-Abuse rules, which are regulated by the corresponding decrees 109 and 110 are also included in the amendments to counteract tax avoidance arrangements that lack commercial substance.
For further information, contact:
| Nicolas Tsiailis | George Kavrigiannis |
| Tax Leader | Tax Leader |
This material is intended for general informational purposes only and should not be considered a replacement for professional advice or consultation.