Cyprus: New anti-abuse decrees applicable to interest, dividends, and royalties

Cyprus on March 13, 2026, published three new decrees introducing strengthened anti-abuse measures applicable to payments of interest, dividends, and royalties to low-taxed jurisdictions (LTJ) and EU non-cooperative jurisdictions (NCJ), effective from January 1, 2026.

The measure requires additional documentation to be provided by any Cyprus company paying interest, dividends, or royalties to an associated company for which no withholding tax was applied and a tax deduction was claimed in the paying company (for interest and royalties).

The measures include the following requirements:

• Obtain documentation demonstrating that the foreign entity satisfies the necessary substance requirements. If the recipient company does not meet two or more of the substance criteria, including having a qualified independent director, local presence of decision-makers, office premises and staff in the jurisdiction, board meetings held locally, local, operational costs and beneficial ownership, payments will be treated as subject to withholding tax.
• Several exemptions apply for the documentation requirements, including when payments are made to: (1) Cyprus/EU/EEA tax residents, (2) entities within MNE groups subject to 15% minimum tax under EU or OECD Pillar Two rules, (3) holders of listed securities (when the payer is not aware that income is ultimately routed to LTJ or NCJ), (4) non-residents with permanent establishment (PE) in a LTJ/NCJ, and (5) arrangements when the payer demonstrate valid commercial reasons.
• Maintain the documentation for the statute of limitations period (i.e., six years in Cyprus).
• Disclose relevant information in their annual income tax returns, and the tax authorities may request evidence of compliance.
• Penalties for late submission of requested documents range from €2,000 to €10,000.

 Read an April 2026 report prepared by KPMG’s EU Tax Centre