Tax Alert
The Cyprus Tax Department has issued Circular 1/2026, confirming the jurisdictions treated as low-tax jurisdictions for the 2026 tax year and triggering important defensive tax measures for Cyprus companies.
Executive summary
For 2026, a jurisdiction is treated as low-tax where its corporate tax rate is below 50% of the Cyprus corporate income tax rate. Following the increase of the Cyprus corporate income tax rate to 15% from 1 January 2026, the relevant benchmark is now a corporate tax rate below 7.5%.
What is a low-tax jurisdiction?
A low-tax jurisdiction is generally a jurisdiction with a corporate tax rate lower than 50% of the Cyprus corporate income tax rate. For the 2026 tax year, this means jurisdictions with a corporate tax rate below 7.5%.
The publication of the list is part of Cyprus’ wider anti-abuse framework and is particularly relevant for Cyprus companies with international group structures, financing arrangements, intellectual property structures, or dividend flows involving offshore or low-tax entities.
The 2026 low-tax jurisdictions list
The following jurisdictions have been designated as low-tax jurisdictions for the 2026 tax year:
Main tax implications for Cyprus companies
Where a Cyprus company makes certain payments to in-scope recipients connected with low-tax jurisdictions, the defensive tax measures may affect both deductibility and withholding tax treatment.
1. Interest and royalty payments
Interest and royalty payments to in-scope recipients that are tax resident, organised or established in low-tax jurisdictions may not be deductible for Cyprus corporate income tax purposes.
2. Dividend payments
Dividend payments to in-scope recipients may be subject to a 5% withholding tax. Where a jurisdiction is also listed as an EU non-cooperative jurisdiction, additional or more onerous defensive measures may need to be considered.
Why this matters in practice
The new list is particularly relevant for groups that use entities in offshore or low-tax jurisdictions for holding, financing, licensing, intellectual property, or dividend repatriation purposes.
Businesses should review whether they have exposure through:
- Group structures involving entities in the listed jurisdictions;
- Interest-bearing financing arrangements;
- Royalty or intellectual property arrangements;
- Dividend distribution flows;
- Interposed entities lacking sufficient commercial substance;
- Documentation supporting the commercial rationale of the structure.
Key takeaways
- Cyprus has published its 2026 low-tax jurisdictions list under Circular 1/2026.
- The benchmark for low-tax classification is now a corporate tax rate below 7.5%.
- Interest and royalty payments to in-scope recipients may be non-deductible.
- Dividend payments to in-scope recipients may be subject to 5% withholding tax.
- The list is expected to be reviewed annually and may change in future tax years.
Recommended next steps
Cyprus companies with international structures should not treat this as a theoretical update. The practical impact may be significant where payments are made to entities in any of the listed jurisdictions.
Recommended actions include:
- Identify whether the group has entities in any of the listed jurisdictions.
- Review all interest, royalty and dividend payments involving those entities.
- Assess whether the recipient is within the scope of the defensive measures.
- Review substance, governance and supporting documentation.
- Consider alternative structuring options where tax leakage or non-deductibility may arise.
How Predeevo can help
Our team can assist with reviewing your group structure, identifying exposure to the 2026 low-tax jurisdiction rules, assessing withholding tax and deductibility risks, and designing practical alternatives where required.
For tailored advice, contact Predeevo to discuss how these rules may affect your structure or transactions.
Disclaimer: This article is for general information purposes only and does not constitute tax, legal or professional advice. Specific advice should be obtained before taking or refraining from any action.
