The EU in an effort to promote fair tax competition and address harmful tax practices on 14 February 2023 decided to add British Virgin Islands, Costa Rica, Marshall Islands and Russia to the EU list of non-cooperative jurisdictions for tax purposes.
The whole list includes the following jurisdictions:
HOW ARE COMPANIES REGISTERED IN CYPRUS AFFECTED BY THIS CHANGE
The inclusion of the additional 4 countries in the EU List of non-cooperative jurisdictions will affect Cyprus companies in relation to their DAC6 reporting.
Cross-border arrangements with an associated enterprise with tax residence in the above-mentioned list will be considered reportable arrangements under hallmark C1bii – “Arrangements that involve deductible cross-border transactions between associated enterprises in cases where the recipient is resident for tax purposes in a jurisdiction which is assessed as non-cooperative by the EU or OECD.”
The Main Benefit Test (MBT) is irrelevant to this hallmark therefore all cross-border arrangements that relate to tax deductible transactions (such payment of interest expense, payment for services received etc) will be considered as reportable and the report must be submitted within the strict deadlines of the law otherwise heavy penalties apply.
Cyprus companies paying dividend, interest and royalties to companies who are either:
will need to deduct appropriate withholding tax at source at the appropriate rates as indicated in the below table:
Provided that the recipient company holds directly, alone or together with associated companies (which are also resident or registered in a non-cooperative jurisdiction)
The above does not apply on dividend paid by a Cyprus tax resident company listed in a recognised stock exchange)
Does not apply to interest paid in relation to securities listed in a recognised stock exchange
The above rates will not apply for cases where a double tax treaty provides for reduced withholding tax rates.
The only jurisdiction that Cyprus has double tax treaty from the above list is Russia. Therefore, dividends, interest and royalties paid to Russian companies will be subject to the withholding tax rates of 15%,15%,0% respectively subject to the conditions stated in the double tax treaty between Cyprus and Russia
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The Firm and its predecessors offer to their clients legal and advisory services since 1983. The Firm gradually evolved over the years, from one traditional law Firm into an innovative pioneering Law Firm that combines exceptional expertise in corporate law, trusts, taxation, VAT, accounting, litigation, financial services, labour law, migration and technology.
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