On 16 April 2025, the amending laws were published in the Official Gazette of Cyprus, introducing enhanced defensive tax measures in Cyprus. These rules target payments to entities located in EU blacklisted jurisdictions (BLJs) and low-tax jurisdictions (LTJs). The measures take effect immediately for blacklisted jurisdictions, while the provisions for LTJs will apply from 1 January 2026.
Key takeaways on the new Cyprus defensive tax regime
EU Blacklisted Jurisdictions (BLJs) – already in force
✅Dividends and interest paid to associated entities in BLJs are subject to a 17% withholding tax in Cyprus.
✅Royalties paid to BLJs are subject to a 10% withholding tax.
Low-Tax Jurisdictions (LTJs) – in force from 1 January 2026
✅LTJs are defined as jurisdictions with a corporate tax rate below 6.25% (i.e. less than 50% of Cyprus’s 12.5% rate).
✅Dividends paid to LTJs will be subject to a 17% Cyprus withholding tax.
✅Interest and royalties paid to associated entities in LTJs will be non-deductible for Cyprus tax purposes.
Overview of the New Rules:
| Payment Type | Jurisdiction Type | Measure | Effective Date | |
| Dividends | BLJ | 17% WHT | In effect | |
| Interest | BLJ | 17% WHT | In effect | |
| Royalties | BLJ | 10% WHT | In effect | |
| Dividends | LTJ | 17% WHT | 1 January 2026 | |
| Interest | LTJ | Deduction disallowance | 1 January 2026 | |
| Royalties | LTJ | Deduction disallowance | 1 January 2026 | |
The defensive measure will apply where the recipient of the income is an associated company registered in a blacklist or low-tax jurisdiction depending on the type of payment, unless it is tax resident in a jurisdiction that is not a blacklist or low-tax jurisdiction. The law includes a definition as to when a person is considered associated with another person. Generally, any entity in which there is a direct or an indirect relationship in which one entity holds or controls at least 50% of the capital or voting capital of the other entity is considered an associate.
The rules extend to payments made to permanent establishments (PEs) in blacklist or low-tax jurisdictions regardless of whether the PE is maintained by a company that is not in a blacklist/low-tax jurisdiction. Certain exceptions apply
Anti-abuse rule
The Cyprus Tax Authorities may disregard arrangements that lack commercial substance or business purpose, applying the defensive measures regardless of form.
What this means for Cyprus taxpayers
Businesses operating through Cyprus must review all cross-border transactions involving dividend, interest, or royalty payments to ensure none are directed to EU blacklisted or Low-Taxed jurisdictions. Failure to do so could trigger withholding tax liabilities or the loss of deductibility for payments made.
Contact us at George Kaimakliotis & Co Ltd today to review your international structures, manage exposure under the new Cyprus defensive tax measures, and ensure compliance with the latest withholding tax rules.
