Cyprus: New Documentation Requirements for Payments to Non-Resident Companies

Flexi Group
May 8
3 min read

As of 17 April 2025, Cyprus has introduced new requirements regarding certain payments made to non-resident companies. These measures form part of a broader strategy to combat aggressive tax practices and are set out in two separate decrees issued by the Council of Ministers. Though identical in content, the decrees correspond to obligations arising under different legislative frameworks—namely the Income Tax Law (for royalties) and the Special Contribution for the Defence Fund Law (for dividends and interest).

Cyprus: New Documentation Requirements for Payments to Non-Resident Companies

Background

The new decrees supplement recent legislation that targets payments to entities located in jurisdictions classified as low-tax or appearing on the EU blacklist. These rules may result in withholding tax (WHT) obligations or the denial of deductibility for certain outbound payments—specifically dividends, interest, and royalties—unless the receiving company meets specified substance requirements.

Substance and Documentation Requirements

To determine whether the anti-abuse rules are satisfied, Cyprus entities making such payments must retain supporting documentation for a period of six years. This documentation must demonstrate that the recipient company meets at least five of the following six conditions:

Qualified Decision-Makers: At least one board member must possess the appropriate qualifications and authority to independently make decisions regarding the company’s operations, assets, or rights that generate income.
Jurisdictional Presence: At least one authorized board member must reside in or near the recipient company’s country of tax residence.
Office Space: The recipient must maintain office facilities in its country of tax residence that allow its directors and staff to carry out their duties effectively.
Board Meetings: A majority of board meetings must take place in the jurisdiction where the recipient company is tax resident.
Operational Expenses: The recipient must incur proportionate operational expenses, including director and staff remuneration, within its country of tax residence during the relevant tax year.
Beneficial Ownership: The group structure must not be such that the recipient merely channels funds to another associated company with minimal taxable income retention.

If these criteria are not met—specifically, if fewer than five of the six are satisfied—the payment arrangement may be considered abusive unless there is valid commercial reasoning or evidence that securing a tax benefit was not the main purpose.

Reporting Obligations

Cyprus-based paying entities are now required to confirm compliance with these documentation requirements via their corporate income tax returns. Tax authorities may also request detailed lists or additional documentation to verify compliance.

Exemptions

The documentation rules do not apply if the income recipient:

Is a tax resident of Cyprus,
Is a resident of another EU or European Economic Area (EEA) country,
Belongs to a multinational group subject to a minimum 15% tax under EU or OECD global minimum tax rules,
Is part of a consolidated group with no presence in EU blacklisted jurisdictions.

These developments mark a significant tightening of compliance obligations for Cyprus-based companies making payments to entities in certain foreign jurisdictions and underscore the importance of maintaining robust documentation and governance practices.

*DISCLAIMER: This article and its publication are intended to provide a brief introduction and act as a general guide. This is provided for information purposes only and cannot be utilized as a substitute for professional advice. This document does not represent a legal opinion and one must not rely on it without receiving independent advice based on the particular facts of its own case. No responsibility is accepted by the author or the publishers for any loss suffered from acting or refraining from acting based on the contents of this publication.