Effective as of April 16, 2025, Cyprus has implemented a 17% withholding tax (WHT) on dividend payments made by Cyprus-resident companies to associated entities in EU-blacklisted jurisdictions. This represents a significant departure from Cyprus’s long-standing reputation as a zero-WHT jurisdiction and has direct implications for international businesses with offshore shareholders.
Under this new law, dividends paid to associated companies (holding at least 50% of shares or voting rights) in non-cooperative jurisdictions — such as the British Virgin Islands, Panama, and others on the EU blacklist — are now subject to a 17% WHT. Furthermore, from January 1, 2026, the same WHT will apply to associated entities in low-tax jurisdictions, defined as countries with corporate tax rates below 6.25% (half of Cyprus’s current 12.5% rate).
Why This Matters
For companies operating in or through Cyprus, these changes can increase the effective tax burden on profits distributed abroad. Structures designed to route dividends to low- or no-tax jurisdictions will need to be re-evaluated for compliance, efficiency, and exposure.
While the legislation is part of Cyprus’s broader commitment to align with international tax standards and enhance transparency, it could reduce the appeal of traditional offshore holding setups.
Are There Any Benefits?
Yes. The law encourages substance-based business models and supports genuine economic activity in Cyprus. Entities with real presence—local offices, staff, board control—may still benefit from Cyprus’s otherwise attractive tax regime, double-tax treaties, and EU membership. Moreover, these changes help preserve Cyprus’s credibility as a compliant and respected financial jurisdiction.
How We Can Help
As experienced legal advisors in Cyprus, we can help you:
- Assess exposure: Determine whether your current structure involves affected jurisdictions or entities.
- Navigate compliance: Review shareholder arrangements, residency status, and association tests.
- Plan restructuring: Redesign your group structure to minimize tax leakage, possibly through EU or treaty-aligned jurisdictions.
- Substance review: Support the development of real economic substance in Cyprus to align with legal and tax expectations.
- Treaty guidance: Monitor ongoing double-tax treaty renegotiations that may mitigate WHT obligations.
