On October 22th of 2020 the Council of Ministers of the Republic of Cyprus approved the Draft Budgetary Plan (DBP), a breakdown of the Cyprus economy state, the macroeconomic and fiscal forecasts, as well as the 2021 Budget Bill, presented to the Attorney Generals’ Office for legal vetting.
The Cyprus Draft Budgetary Plan embraces the European Commissions’ initiative to address aggressive tax planning, through the adoption of the EU Directive on Administrative Cooperation Vol. 6, as well as the EU Anti-Tax Avoidance Directive II. Furthermore, the Cyprus Government introduces two unilateral tax measures in that direction:
i) The introduction of withholding tax (WHT) on dividends, interest and royalty payments to countries enumerated in Annex I of the EU list of non-cooperative jurisdictions on tax matters, often referred to as the “EU Blacklist”. The countries figuring on the aforementioned list are American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu and Seychelles.
ii) The establishment of a corporate tax residency test based on incorporation, in addition to the existing “management and control” test. This measure is adopted for the expansion of the definition of “Resident of the Republic”, in order to include legal entities incorporated in the Republic of Cyprus, but whose management and control are operated outside the borders of the Cypriot territory, unless such a legal entity is a tax resident in another state, other than the states listed in Annex I of the EU list of non- cooperative jurisdictions on tax matters.
The two newly introduced tax measures included in the DBP derive from the Country Specific Recommendations (CSR) which have been suggested to the Republic of Cyprus by the European Commission. The first measure on Withholding Tax for payments to states listed in Annex I of the EU list of non-cooperative jurisdictions on tax matters, complies with the EU Code of Conduct Group agreed guidance, often referred to as the “COCG agreed guidance”, according to which EU Member States are expected to adopt at least one additional defensive measure through their national legislation, enumerating the “withholding tax measure” as one.
The aforementioned unilateral measures have already been presented to the Attorney Generals’ Office for legal vetting and shall be submitted to the House of Representatives for voting by the end of this year. Their entry into force is expected to be effective on January 1st of 2021, as per the COCG agreed guidance to the EU Member States.
The present article is purely for informational purposes and does not, under any circumstances, constitute legal advice. For further information on the matter, please contact Arsen Theofanidis LLC and one of our legal consultants shall be glad to assist you.
N. Kalifatidou
Advocate – Legal Consultant
Arsen Theofanidis LLC