Cyprus: Cyprus First Implementation Of The EU Anti-Tax Avoidance Directive

Last Updated: 3 May 2019

The Cyprus Parliament voted on 5 April 2019 the first implementation law in Cyprus of the EU Anti- Tax Avoidance Directive (ATAD) and more specifically on the following areas:

1. Interest limitation rule

2. Controlled Foreign Company (CFC) rule

3. General Anti-Abuse rule (GAAR)

The first ATAD implementation law will enter into force on the date that it will be published in the Cyprus Government Gazette with an effective date as from 1 January 2019 i.e. for tax years 2019 and onwards.

The first ATAD implementation law impacts only Cyprus corporate income tax taxpayers (Cyprus CIT taxpayers) and more specifically:

  • Cyprus tax resident companies, and
  • Cyprus permanent establishments (PEs) of non-Cyprus tax resident companies

The remaining measures provided for in the ATAD are expected to be implemented in Cyprus in a second implementation law (anticipated to be passed in Cyprus later this year) which is expected to provide that such measures will be effective not earlier than the effective dates provided for in the ATAD, that is:

  • Exit taxation provisions – 1 January 2020
  • Hybrid mismatch rules – 1 January 2020 (exception: certain reverse hybrid mismatch provisions - 1 January 2022)

ATAD first implementation law in a nutshell

1. Interest limitation rule

1.1. Scope

Cyprus, consistent with the options foreseen by the ATAD, excluded from the scope of application of this rule:

  • standalone companies i.e. companies that on a worldwide basis are not members of a group/have no associates/no PEs, and
  • financial undertakings which broadly correspond to regulated financial undertakings such as banks, insurance entities, investment funds, pension funds and securitisation vehicles. Where a Cyprus CIT taxpayer is a member of a Cyprus group the interest limitation rule applies at the level of the Cyprus group, otherwise it applies per company or per Cyprus PE. The Cyprus group for this rule has a 75% relationship condition and is referred to below as "the Cyprus group".

1.2. How the rule works

The interest limitation rule limits the otherwise deductible exceeding borrowing costs (EBCs) of the Cyprus CIT taxpayer/Cyprus group up to 30% of adjusted taxable profit (taxable EBITDA).

The interest limitation rule contains an annual €3.000.000 safe-harbour threshold. This means that EBCs up to and including €3.000.000 is in any case not restricted by this rule (the €3.000.000 threshold would apply in cases where '30% of taxable EBIDTA' results to an amount below €3.000.000). In the case of a Cyprus group the €3.000.000 applies for the aggregate EBCs of the Cyprus group and not per taxpayer.

The taxable EBITDA is computed by adding back to the taxable profit of the year the EBCs, depreciation, amortisation and deductions in relation to tangible/intangible fixed assets. The 80% Cyprus 'IP Box' deduction on qualifying IP profits is added back to the taxable profit for the purposes of determining the taxable EBITDA.

EBCs are defined as the amount of tax deductible borrowing costs in excess of the amount of taxable interest income/other taxable income economically equivalent to interest.

The term 'borrowing costs' is broadly defined and covers interest expenses on all forms of debt, other costs economically equivalent to interest expenses as well as expenses incurred in connection with the raising of finance including, for example, payments under profit participating loans, financing related hedging costs and guarantee fees. Consistent with the OECD BEPS Action 4, from which the interest limitation rule derives, the annual Cyprus Notional Interest Deduction (NID) which is calculated on new equity (introduced in Cyprus with effect from 1 January 2015) is not considered as 'borrowing costs' for the purposes of this rule.

The interest limitation rule applies to EBCs irrespective of whether the financing is with related parties or third parties.

1.3. Specific exclusions

Grandfathering of loans concluded before 17 June 2016

When determining the amount of deductible EBCs that may be limited under this rule, the EBCs of loans concluded before 17 June 2016 are excluded and remain deductible. This exclusion shall not extend to any subsequent modification of such loans.

Long-term infrastructure projects

When determining the amount of deductible EBCs that may be limited under this rule, the EBCs, arising from loans used to finance long-term infrastructure projects in those cases where the project operator, borrowing costs, assets and income are all in the EU are excluded and remain deductible.

The corresponding taxable profit from such long-term infrastructure projects is excluded from the taxable EBITDA.

Group equity escape

There is an annual election for a group equity escape, which is based on the level of equity of the Cyprus CIT taxpayer/Cyprus group as compared to the level of equity within the Cyprus CIT taxpayer's/Cyprus group's consolidated group for financial reporting purposes (on a world-wide basis). In cases where the ratio of "equity/total assets" is higher at the level of the Cyprus CIT taxpayer/Cyprus group (or even up to 2% lower) as compared to its consolidated group for financial reporting purposes (on a world-wide basis), the interest limitation rule, in effect, does not apply for that tax year.

1.4. Carry forward

The interest limitation rule also contains carry forward provisions. EBCs not deductible in a tax year due to the application of this rule may be carried forward to future tax years for up to 5 years. This 5- year carry forward is in line with Cyprus' 5-year income tax loss carry forward rule. Additionally unused interest capacity (i.e where the amount of 30% of taxable EBITDA is in excess of the EBCs for a tax year) that has not been utilised within a tax year may be carried forward for use for the next 5 tax years.

The above carry forward provisions are subject to an anti-abuse rule in certain cases of change in ownership of the company.

2. Controlled Foreign Company (CFC) rule

2.1. Scope

A CFC is a low taxed non-Cyprus tax resident company in which the Cyprus CIT taxpayer, alone or together with its associated enterprises, holds a direct or indirect interest of more than 50%.

A CFC is also a low-taxed foreign PE of a Cyprus tax resident company that is exempt from tax in Cyprus (exempt foreign PE) A non-Cyprus tax resident company (or an exempt foreign PE) is considered as low-taxed if the actual foreign corporate tax paid by it on its profits is lower than 50% of the corporate income tax charge that would have been payable in Cyprus under the Cyprus corporate income tax rules had it been a Cyprus tax resident company.

2.2. Exceptions

The CFC rule does not apply to non-Cyprus tax resident companies (or exempt foreign PEs):

i) with accounting profits of no more than €750.000 and non-trading income of no more than €75.000; or

ii) of which the accounting profits amount to no more than 10% of their operating costs for the tax period. For the purposes of this exception operating costs do not include the cost of goods sold outside the country where the non-Cyprus tax resident company (or the exempt foreign PE) is tax resident and payments to associated enterprises.

2.3. Targeted income

Cyprus has opted for the Model B approach as foreseen in ATAD.

When a non-Cyprus tax resident company (or an exempt foreign PE) meets the definition criteria of CFC (refer to Scope, section 2.1 above), the Cyprus CIT taxpayer must include in its taxable profit the non-distributed income of the CFC to the extent such income arises from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage (refer to Nongenuine arrangement test, section 2.4 below).

Non-distributed income of the CFC is defined as the after tax accounting profit of the CFC, which has not been distributed to the Cyprus CIT taxpayer during the Cyprus tax year in which the CFC profits are included (refer to Inclusion rules, section 2.5 below), or within the next seven months.

2.4. Non-genuine arrangement test

An arrangement or series thereof shall be regarded as non-genuine to the extent that the CFC would not own the assets or would not have undertaken the risks which generate all, or part of, its income if it were not controlled by the Cyprus CIT taxpayer where the significant people functions (SPFs) which are relevant to those assets and risks, are carried out and are instrumental in generating the CFC's income.

2.5. Inclusion rules

The non-distributed income of the CFC included in the taxable profit of the Cyprus CIT taxpayer shall be limited to amounts generated through assets and risks which are linked to the SPFs in the Cyprus CIT taxpayer and is calculated based on arm's length principles. Further, this amount shall not exceed the amount of the non-distributed income of the CFC (grossed-up for the CFC's foreign corporate tax paid) which resulted from assets and risks associated with the SPFs carried out by the Cyprus CIT taxpayer.

The same provisions apply in those cases where the CFC generates losses instead of profits. The CFC income or loss, depending on the case, to be included in the taxable profit of the Cyprus CIT taxpayer is calculated based on the Cyprus CIT taxpayers' percentage of entitlement of the CFC's profits. The CFC income or loss must be included in the Cyprus tax period in which the tax year of the CFC ends. Upon inclusion, such income or loss shall be subject to the normal Cyprus corporate income tax rules.

2.6. Avoidance of double taxation on CFC income

Cyprus shall grant a tax credit against the Cyprus corporate income tax payable for certain taxes paid abroad on the CFC income.

Additionally rules have been put in place to prevent double taxation in Cyprus in cases where income that has previously been included in Cyprus under the CFC rule is subsequently actually distributed or realised through a disposal of investment.

3. General Anti-Abuse Rule

The Cyprus ATAD first implementation law includes the ATAD GAAR. This requires (for the purposes of calculating the Cyprus corporate income tax liability of the Cyprus CIT taxpayer) an arrangement or a series of arrangements to be ignored where these, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances. An arrangement or a series thereof shall be regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.


The Cyprus ATAD first implementation law is further clear indication of Cyprus's willingness to comply fully with EU tax initiatives and to adapt fully to a "post-BEPS" international tax environment. Clarifying interpretative circulars are expected to be issued by the Cyprus Tax Authority (CTA) in the coming months in order to provide more practical guidance on this law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
C.Savva & Associates Ltd
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
C.Savva & Associates Ltd
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions