WITHHOLDING TAX

What is withholding tax (WHT)?

Withholding tax is an amount deducted at source from a person or entity who makes a payment to another person or entity and then pays this ampunt directly to the tax authorities. This a method used by Tax Authoritities around the world to manage their taxes more effectively. For payments outside Cyprus, the WHT is subjected to the tax regulations of the relevant country.

Withholding taxes in Cyprus

• WHT on dividends (see below)
• WHT on interest (see below)
• WHT on royalties (see below)
• WHT on salary (PAYE) (see below)
• WHT on public entertainment gross income or remuneration (performed for non CY residents) (see below)
• WHT on technical services (performed for non CY residents) (see below)
• WHT on explorations and other related services (performed for non CY residents) (see below)

WHT on dividends payments
When applies, the withholding tax deducted at source by a Cyprus Company at the time of payment of the dividends or under deemed distribution mechanism is 17% and is under special contribution tax regime.

Payment to non Cyprus tax residents

• The payment of a dividends by a Cyprus Company to a non Cyprus tax resident individual is not subjected to withholding tax .
• The payment of a dividends by a Cyprus Company to a foreign entity is not subjected to withholding tax in Cyprus.

Note: From 31 December 2022, dividends paid to residents in an EU blacklisted jurisdiction or any other person registered in a EU blacklisted jurisdiction will be subjected to withholding tax (WHT) of 17% in case this person is not tax resident elsewhere.

Payments to Cyprus tax residents

• The payment of a dividends by a Cyprus Company to a Cyprus tax resident individual is subjected to withholding tax of 17%.
• The payment of a dividends by a Cyprus Company to a Cyprus tax resident individual who is qualified as Non-Domiciled is tax exempt.
• The payment of a dividends by a Cyprus Company to a Cyprus company is not subjected to withholding tax.

WHT on interest payments
When applies, the withholding tax deducted at source by a Cyprus Company (i.e. bank) at the time of payment is 30%.

Payment to non Cyprus tax residents
The payment of a interest by a Cyprus Company (i.e. bank) to a non Cyprus tax resident individual or foreign entity is not subjected to withholding tax if relates to the ordinary activity of the individual business. Otherwise is subjected to 30% WHT.

WHT on royalties payments
When applies, the withholding tax deducted at source by a Cyprus Company at the time of payment is 10% or 5% in case of cinematograph film or film industry.

Payment to non Cyprus tax residents
If the payment is made to individual or entity that is non-resident in Cyprus no withholding tax is deducted at source taking into consideration that the royalties are not deriving from Cyprus. If the royalties are deriving from Cyprus the WHT is 10% or 5%.

WHT on salary (PAYE)

Cyprus employers have the obligation to deduct the at cource the appropriate tax (PAYE) before the salary payment. The tax is calculated on the taxable income and deducted at source per month as per the following rates:

For the first €19,500 not tax is deducted at source
For €19,501 – €28,000 tax rate is 20%
For €28,001 – €36,300 tax rate is 25%
For €36,301 – €60,000 tax rate is 30%
For €60,001 and above tax rate is 35%

Payment to non Cyprus tax residents
Cyprus employers do not deduct tax from salaries as per the Cy Tax Law. Tax and other deductions needs to calculated in the country where the employee is resident.

Payment to Cyprus tax residents
Tax is deducted at source at the time of payment of salary according to the above rates for their services offering as an employee with and outside Cyprus.

WHT on public entertainment gross income or remuneration (performed for non CY residents)
If a not Cyprus Tax Resident offer public entertainment and any other type of entertainment (i.e. musical, theatrical, athletic events) is subjected to 10% on the gross remuneration or gross sales (i.e. tickets) 

WHT on technical services (performed for non CY residents)
If a not Cyprus Tax Resident offers technical services, the WHT is 10% on the gross sales / receipts

WHT on explorations and other related services (performed for non CY residents)

• If a not Cyprus Tax Resident offers technical services, the WHT is 10% on the gross sales / receipts
• If the beneficial is a permanent establishment in Cyprus of the non Cyprus tax resident then no WHT is deducted.
• If the service is performed between associated companies (EU Interest and Royalty Directive) then no WHT is deducted.