As per the decision of the EU Council dated 14 February 2023, British Virgin Islands, Costa Rica, Marshall Islands and Russia have been added to the EU list of non-cooperative jurisdictions for tax purposes, which now is composed of the following countries:
- American Samoa
- British Virgin Islands
- Costa Rica
- Marshall Islands
- Trinidad and Tobago
- Turks and Caicos Islands
- US Virgin Islands
The EU list includes jurisdictions that have not managed to engage in a constructive dialogue with the EU on tax governance, or have failed to deliver on their commitments to implement specific reforms aiming towards tax good governance, which include tax transparency, fair taxation and implementation of international standards designed to prevent tax base erosion and profit shifting.
In the case of Russia, it was effectively concluded that it has not fulfilled its commitment to address the harmful aspects of a preferential tax regime for international holding companies. In addition, dialogue with Russia on matters related to taxation came to a standstill following the current situation between Russia and Ukraine.
In the case of the British Virgin Islands, the reason sighted for inclusion in the list is not being sufficiently in compliance with the OECD standard on exchange of information on request (specifically, it does not have a rating of at least “largely compliant”).
The list will be updated again in October 2023.
CYPRUS IMPORTANT TAX IMPLICATIONS: Cyprus Withholding Taxes (WHT) on payments of dividends, interest, and royalties.
As from 31 December 2022, Cyprus applies the following WHT on payments of dividends, interest and royalties towards entities incorporated, registered or that are tax resident in an EU non-cooperative jurisdiction:
- Dividends: 17% WHT provided that the foreign entity, alone or jointly with other associated entities, holds more than 50% of the share capital or voting rights of the paying company or is entitled to receive more than 50% of the profits of the payer company.
- Interest: 30% WHT
- Royalties: 10% WHT except for royalty payments made by individuals.
Dividend, interest, and royalty payments made to entities incorporated in the above jurisdictions, but which are tax resident in other jurisdictions are exempt from the abovementioned WHT provisions.
Additionally, dividend and interest payments on securities listed on a recognized stock exchange are exempt from WHT.
Entities incorporated and or tax resident in the above jurisdictions fall under Hallmark C(1)(b)(ii) the EU Mandatory Disclosure Rules (DAC6) irrespective of whether the main benefit test is met or not. This may impact the reporting obligations of arrangements with entities from British Virgin Islands, Costa Rica, Marshall Islands and Russia that were previously not-reportable.
In cases which are adversely affected by the measure of the withholding tax introduction (e.g. because the corporate beneficial shareholder of the Cyprus company is on this list e.g. being a BVI or Marshal Islands entity), a consideration may be to proceed with changing the jurisdiction of the beneficial shareholder of the Cyprus company to another jurisdiction, so as to proceed with re- domiciliation to an EU jurisdiction (Cyprus is a quite common solution) as well as the transfer of shares of the beneficial shareholder to another.