NEW ADDITIONS TO THE EU LIST OF NON-COOPERATIVE JURISDICTIONS FOR TAX PURPOSES

NEW ADDITIONS TO THE EU LIST OF NON-COOPERATIVE JURISDICTIONS FOR TAX PURPOSES

On 14 February 2023 in an effort to promote fair tax competition and deal with harmful tax practices the EU decided to add four more countries to the EU list of non-cooperative jurisdictions for tax purposes: British Virgin Islands, Marshall Islands, Cost Rica, and Russia.

The complete list now comprises the following jurisdictions:

• American Samoa
• Anguilla
• Bahamas
• British Virgin Islands
• Costa Rica
• Fiji
• Guam
• Marshall Islands
• Palau
• Panama
• Russia
• Samoa

HOW THAT AFFECTS COMPANIES REGISTERED IN CYPRUS

This inclusion of the additional four 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 heave penalties apply.

WITHHOLDING TAXES ON OUTBOUNF DIVIDEND, INTEREST AND ROYALTY PAYMENTS

Cyprus Companies paying dividend, interest and royalties to companies who are either:

• Tax Resident in a jurisdiction mentioned in the above list or
• Are registered in these jurisdictions and are not tax resident in a jurisdiction which is not in the above list

will need to deduct appropriate withholding tax at source at the appropriate rates as indicated below:

• Dividends – 17% tax rate, provided that the recipient company holds directly, alone or together with associated companies (which are also resident or registered in a non-cooperative jurisdiction) 50% or more of the voting rights, share capital or right to receive profits of the Cyprus tax resident company that pays the dividend. The above does not apply on dividend paid by a Cyprus tax resident company listed in a recognised stock exchange)
• Interest – 30% tax rate. Does not apply to interest paid in relation to securities listed in a recognised stock exchange
• Royalties – 10% tax rate.

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.

The above is for informative purposes only. Further professional advice should be sought for each particular case. Our firm does not accept any responsibility for any loss or damage occurring by acting on the basis of this information.