New Documentation Requirements for Payments to Non-Resident Companies Introduced

We would like to inform you that the Council of Ministers has issued two new decrees (ΚΔΠ 109/2025and ΚΔΠ 110/2025), providing further clarification on the implementation of the anti-abuse provisions related to the recently enacted defensive measures for payments made to blacklisted jurisdictions (BLJ) and low-tax jurisdictions (LTJ).

The Decrees set out specific substance and other requirements that the recipient company must satisfy, and provide guidance on the obligation of the Cyprus paying entity to maintain supporting documentation that substantiates compliance with these requirements.

Summary of the New Measures Introduced Against LTJ

The new measures abolish the previous framework applicable to BLJ and introduce a broader and more comprehensive regime that also covers LTJ. The updated rules apply a combination of withholding tax and expense disallowance, depending on both the type of payment and the classification of the jurisdiction, as outlined in the table below:

Key Provisions of the Decrees

The Decrees provide clarification on the application of the anti-abuse provisions introduced by the Laws. According to these provisions, any arrangement (or series of arrangements) established primarily—or partly—with the aim of obtaining a tax advantage, and lacking valid commercial reasons that reflect economic reality, will be disregarded.

Requirements for Satisfying the Anti-Abuse Provisions

To assess whether the anti-abuse provisions are met, the Decrees specify that in cases where dividends, interest, or royalty payments are made by a Cyprus entity to associated entities in low-tax or EU blacklisted jurisdictions—and no withholding tax is applied (as per the relevant Laws)—the Cyprus paying entity must review and retain, for at least six years from the end of the relevant tax year, supporting documentation on the recipient entity covering the following:

1. Decision-making: At least one Board member must have the appropriate qualifications and authority to make decisions regarding the company’s operations, assets, or income-generating rights—and must actively and independently exercise these duties.
2. Local presence of decision-makers: At least one authorized Board member resides in the jurisdiction where the company is tax resident (or within commuting distance).
3. Office space: The recipient entity maintains office premises in its country of tax residence, allowing directors and staff to effectively perform their duties.
4. Board meetings: The majority of Board of Directors meetings occur in the recipient entity’s country of tax residence.
5. Operational expenses: The recipient entity’s operational expenses—including payments to directors and staff—are incurred within its tax residency jurisdiction and are proportionate to its activities.
6. Beneficial ownership: The group’s structure must not be such that the recipient entity merely receives income from the Cyprus company and quickly redirects most or all of it to another associated company, thereby generating minimal taxable income while facilitating transfer to the ultimate beneficial owner.

If the recipient entity fails to meet at least five of the above conditions, the arrangement (or series of arrangements) will be disregarded and the defensive measures will apply—unless the taxpayer can prove that:

1. The arrangement(s) were established for valid commercial reasons reflecting economic reality; or
2. The primary purpose was not to obtain a tax advantage.

Cyprus paying entities are required to confirm compliance with the Decrees’ supporting documentation obligations through their corporate income tax return for the relevant year.

Important Clarification:

If the recipient fails to satisfy two or more of the listed criteria, the arrangement will be disregarded and the relevant withholding tax (WHT) provisions will apply—unless the taxpayer can substantiate either a valid commercial purpose or that obtaining a tax advantage was not the sole or primary aim.

Exceptions

The above supporting documentation requirements do not apply when the recipient entity is:

1. A tax resident of Cyprus;
   b. A tax resident of another EU Member State or an EEA country;
   c. Part of a multinational group subject to a minimum 15% tax under legislation aligned with EU Directive 2022/2523 or OECD GloBE rules; or
   d. A member of a consolidated group for accounting purposes with no presence in an EU blacklisted jurisdiction, either directly or through a permanent establishment.