15.06.2025
Tax legislation amendments effective 1 January 2026
1. Payments to Low-Tax Jurisdictions (LTJ) – effective 1 January 2026
Payees (Companies concerned):
The above applies where the income is paid to a company that is connected to the Cyprus-resident payer, meaning:
2. Payments to Non-Cooperative Jurisdictions (BLJ)
Payees:
The same connected persons test applies:
Key Takeaway
Type of Payment | Tax Treatment | Legal Basis |
Interest | Non-deductible | Art. 11(17) Income Tax Law 118(I)/2002; Note 8 Law 47(I)/2025 |
Royalties | Non-deductible | Art. 11(17) Income Tax Law 118(I)/2002; Note 8 Law 47(I)/2025 |
Dividends | 17% SDC | Art. 3(2)(a1)(i) SDC Law 117(I)/2002 |
The above applies where the income is paid to a company that is connected to the Cyprus-resident payer, meaning:
- The recipient company holds (directly or indirectly, alone or together with connected persons) >50% of voting rights, capital or profit entitlement in the Cyprus-resident payer; or
- The Cyprus-resident payer holds (directly or indirectly, alone or together with connected persons) >50% of voting rights, capital or profit entitlement in the recipient company; or
- The same person (together with connected persons) holds (directly or indirectly) >50% in both the Cyprus-resident payer and the recipient company.
- Deduction allowed if payment is made to a permanent establishment in a jurisdiction with a normal (non-low) tax rate, where profits are subject to tax (≥15% under EU Directive 2022/2523 or OECD Model Rules).
- Deduction also allowed if the payment is subject to:
- 10% royalty tax under Art. 21 ITL 118(I)/2002; or
- 10% royalty tax under Art. 21A ITL 118(I)/2002 (royalties to non-cooperative jurisdictions); or
- Special Defence Contribution (SDC), avoiding double taxation.
2. Payments to Non-Cooperative Jurisdictions (BLJ)
Type of Payment | Tax Treatment | Legal Basis |
Interest | 17% SDC | Art. 3(2)(b1) SDC Law 117(I)/2002 |
Royalties | 10% | Art. 21A Income Tax Law 118(I)/2002 |
Dividends | 17% SDC | Art. 3(2)(a1)(ii) SDC Law 117(I)/2002 |
The same connected persons test applies:
- The recipient company is considered connected if there is direct/indirect participation of >50% in voting rights, share capital or profit entitlement between payer and payee, or if the same person (with connected persons) holds >50% in both.
Key Takeaway
- LTJ: Interest & royalties non-deductible; Dividends 17% SDC.
- BLJ: Interest 17% SDC; Royalties 10%; Dividends 17% SDC.
- Applies to connected payee companies (>50% ownership/control link with the Cyprus payer).