Cyprus has officially implemented defensive tax measures on outbound payments of dividends, interest and royalties to low-tax and EU blacklisted jurisdictions.
Which jurisdictions are affected?
The rules apply to:
- EU-blacklisted jurisdictions, and
- Low-tax jurisdictions, defined as jurisdictions with a corporate tax rate of less than 50% of Cyprus’s corporate tax rate (i.e. < 6,25% based on 2025 rates).
Dividends:
A 17% Special Defence Contribution (SDC) applies to dividends paid by Cyprus companies to recipients in:
- -Low-tax jurisdictions, and
- -EU-blacklisted jurisdictions.
| Jurisdiction | Treatment |
|---|---|
| EU-blacklisted | 17% withholding tax (SDC) applies |
| Low-tax | 17% withholding tax (SDC) applies |
This also extends to permanent establishments and capital reductions to the extent distributions exceed paid-in capital.
Exemption: Dividends on listed securities.
Interest:
Two parallel rules now apply:
| Jurisdiction | Treatment |
|---|---|
| EU-blacklisted | 17% withholding tax (SDC) applies |
| Low-tax | Non-deductibility of interest expense for the Cyprus payer |
Exemption: Interest on listed securities.
Interest payments by individuals are excluded.
Royalties:
| Jurisdiction | Treatment |
|---|---|
| EU-blacklisted | 10% withholding tax under the Income Tax Law |
| Low-tax | Non-deductibility of the royalty expense in Cyprus |
Royalty payments by individuals are excluded.
Minimum Holding Threshold:
Measures apply where the recipient holds (directly or indirectly) >50% control in capital, voting rights, or profit share.
Anti-Abuse Provisions:
A general anti-avoidance rule (GAAR) mechanism is embedded within the framework to address arrangements that lack commercial substance and are primarily intended to avoid the application of the defensive measures. Where the prescribed tests are not satisfied, the defensive measures may still apply unless the taxpayer can demonstrate that the arrangement is supported by valid commercial reasons and reflects economic reality.
Impact on Double Tax Treaties:
Cyprus may re-negotiate treaties with jurisdictions falling under these rules where Cyprus is not currently allocated taxing rights.
Effective Dates:
The provisions relating to black-listed jurisdictions are already in force, with the exception of the provisions relating to low-tax jurisdictions, which will enter into force on 1 January 2026.
Key Takeaway:
These changes significantly expand Cyprus’s anti-avoidance framework. Groups with structures involving low-tax or EU-blacklisted jurisdictions should:
✅ Review group payment flows
✅ Assess substance of recipient entities
✅ Evaluate treaty positions and reconsider holding / financing structures
✅ Plan for implementation ahead of 1 January 2026
If you would like to review your structure or understand how these new rules may affect you, our tax team at George Kaimakliotis & Co Ltd is here to help.
You may reach us info@kaimakliotis.com.cy for support and guidance.
