CYPRUS: Update of the EU list of non-cooperative jurisdictions and imposition of withholding tax (WHT) on specific sources of income from companies in Cyprus

Following the approval of the European Union (EU) Finance Ministers on 14 February 2023, there was an update on 21 February 2023 to the list of non-cooperative jurisdictions (EU List). Specifically the jurisdictions of British Virgin Islands, Costa Rica, Marshall Islands and Russia were added in Annex I. Barbados, Jamaica, North Macedonia, and Uruguay were removed and Albania, Aruba, and Curaçao have now been added in Annex II.

Annex I, includes jurisdictions that fail to meet the EU’s criteria on tax transparency, Fair Tax Competition and Base Erosion and Profit Shifting (BEPS) implementation measures by the required deadline.

After the update, the jurisdictions composing Annex I list are:

  • American Samoa,
  • Anguilla, Bahamas,
  • British Virgin Islands,
  • Costa Rica,
  • Fiji, Guam,
  • Marshall Islands,
  • Palau,
  • Panama,
  • Russia,
  • Samoa,
  • Trinidad & Tobago,
  • Turks & Caicos Islands,
  • US Virgin Islands and Vanuatu.

Annex II, includes jurisdictions that have made important commitments to modify their tax policies and subject to close monitoring on the execution of their commitments.

The next review of the EU List is expected to be in October 2023.

From 31 December 2022, Cyprus applies the following withholding taxes on payments of interest, royalties and dividends in favour of entities registered, incorporated, or are tax resident in a non-cooperative jurisdiction include in the Annex I of the EU list mentioned above:

  • Interest: 30% WHT, with the exception for interest payments from securities listed on a recognized stock exchange.
  • Royalties: 10% WHT, with the exception for royalty payments made by individuals.
  • Dividends: 17% WHT provided that the foreign entity, alone or jointly (with other related entities), entitled to receive more than the 50% of the profits of the paying company or holds more than the 50% of the share capital or voting rights of the paying company. Dividends payments from securities listed on a recognized stock exchange are exempt from WHT.

Payments of dividends, interest and royalties made to entities incorporated in the above non-cooperative jurisdictions, but are tax resident in other jurisdictions are exempt from the WHT provisions.

In those cases where WHT are applicable and there is an active Agreement between Cyprus and the non-cooperative jurisdiction for the avoidance of Double Taxation, (is currently the case with Russia), such Agreement is probable that it will supersede the provisions of the domestic tax laws. So the withholding tax rates included in the relevant Double Tax Treaty will apply on the relevant type of income (interest, royalties, dividends).

The entities incorporated and or tax resident in the above non-cooperative jurisdictions fall under Hallmark C(1)(b)(ii) of the EU Mandatory Disclosure Rules (DAC6), irrespective of whether the main benefit test is met or not. That may affect the reporting obligations of arrangements under DAC6 with entities from British Virgin Islands, Costa Rica, Marshall Islands and Russia, for which those arrangements were previously not-reportable.

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