Cyprus is expanding and updating its double tax treaty (DTT) network. A Protocol to the Cyprus-Germany DTT became effective on 1 January 2022. Additionally, a first-time Cyprus-Jordan DTT entered into force as of 11 April 2022. Finally, a first-time Cyprus-Netherlands DTT entered into force as of 30 June 2023 and should be effective as of 1 January 2024.
On 5 April 2019, Cyprus voted the first implementation law of the European Union (EU) Anti-Tax-Avoidance Directive (ATAD) and, more specifically, the interest limitation rule, controlled foreign company (CFC) rule, and general anti-abuse rule (GAAR), which are effective for tax years starting from 1 January 2019 (see the Deductions and Group taxation sections for more information).
On 19 June 2020, Cyprus voted the second implementation law with respect to the remaining measures provided for in the ATAD, which are effective as follows:
- Exit taxation provisions: As of 1 January 2020.
- Hybrid mismatch rules: As of 1 January 2020 (except for specific reverse-hybrid mismatch provisions that are effective as of 1 January 2022).
The two ATAD implementation laws impact only Cyprus corporate income taxpayers and, more specifically, Cyprus tax resident companies and Cyprus permanent establishments (PEs) of non-Cyprus tax resident companies, except for a specific reverse-hybrid mismatch provision that may apply more broadly.
Cyprus is an early adopter of the Common Reporting Standard (CRS) on automatic exchange of financial account information and also has signed an intergovernmental agreement (IGA) with the United States (US) for the Financial Account Tax Compliance Act (FATCA) (see the Other issues section for more information).
Cyprus signed the Multilateral Convention to Implement Tax Treaty Related Measures (MLI) to Prevent Base Erosion and Profit Shifting (BEPS) on 7 June 2017. Subsequently, Cyprus ratified the MLI on 23 January 2020. The date of 'entry into effect' as regards Cyprus’ application of the MLI for any particular bilateral DTT covered by the MLI depends upon various possible legal processes/options by the other contracting jurisdiction. Cyprus has also successfully transposed into its legal and tax framework all EU Directives on Administrative Cooperation and Mutual Assistance (DACs 1-5).
Further, on 18 March 2021, the House of Representatives of the Republic of Cyprus approved the Law on Administrative Cooperation in the field of Taxation (Law N. 205(I)/2012) implementing the EU Directive 2018/822 (DAC6) on mandatory reporting and exchange of information of cross-border arrangements. The law transposing the DAC6 Directive was published in the Official Gazette of the Cyprus Republic on 31 March 2021 and entered into force immediately with retroactive effect covering transactions from 25 June 2018 and onwards.
With effect as of 1 January 2022, transfer pricing documentation requirements have been introduced. The transfer pricing documentation compliance obligations include the preparation of Master File, Cyprus Local File, and Summary Table for Cyprus tax resident persons and PEs of non-Cyprus tax resident persons situated in Cyprus that engage in transactions with related parties.
Finally, as of 31 December 2022, Cyprus applies withholding tax (WHT) on certain payments to companies in jurisdictions included on the EU list of non-cooperative jurisdictions on tax matters (commonly referred to as the EU ‘blacklist’) as follows:
- WHT of 17% applies on payments of dividends by non-quoted companies.
- WHT of 30% applies on payments of interest (excluding payments by individuals).
- WHT of 10% applies on payments of royalties and similar types of payments (excluding payments by individuals).
Value-added tax (VAT)
Zero rate for services closely connected to the supply of COVID-19 diagnostic medical devices
As of 23 December 2020, the application of the zero rate of VAT has been extended to include, in addition to the supply of in vitro diagnostic medical devices and vaccines for COVID-19, the supply of services closely related to the supply of these goods. The zero rate will apply up to 31 December 2022. The zero rate applies only to in vitro diagnostic medical devices for COVID-19 and closely related services thereof, which comply with the applicable conditions of the Directive 98/79/EC of the European Parliament and of the Council of 27 October 1998 on medical devices used in diagnosis or with the Regulation (EU) 2017/746 of the European Parliament and of the Council of 5 April 2017 for in vitro diagnostic medical devices and only for vaccines against COVID-19 approved by the European Commission.
From 1 January 2021, the following are exempt from VAT:
- Imports of goods by the Commission or by an organisation or agency that has been established based on the law of the European Union, when the Commission or the organisation or institution imports the goods in the performance of duties assigned to them by European Union law for the purpose of response to the COVID-19 pandemic, unless the imported goods are used, either immediately or at a later date, for further deliveries for consideration by the Commission or by that body.
- Deliveries of goods and services to the Commission or to an organisation or body established under the law of the European Union, when the Commission or such organisation or body purchases the goods or services in the performance of the duties assigned to them by its law European Union in order to deal with the COVID-19 pandemic, except if the goods or services purchased are used, either immediately or at a later date, for further deliveries or services against payment caused by the Commission or by the organisation or body in question.