Offshore Tax with HTJ.tax

In this episode, we explore how Cyprus’s new defensive tax measures are reshaping the landscape for non-resident companies. These measures, including a General Anti-Abuse Rule (GAAR) and new substance requirements, target artificial structures designed to route payments through low-tax jurisdictions without real economic presence.

We unpack what this means for corporate groups, holding structures, and international tax compliance — and how businesses can adapt before the 2026 implementation deadline.

Cyprus has introduced a general anti-abuse rule allowing tax authorities to disregard arrangements that:

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• Lack commercial reasoning or economic reality, and
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• Have as their main or one of the main purposes obtaining a tax advantage by avoiding defensive measures.
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The rule aims to prevent “letterbox” entities or interposed companies that sit between a Cypriot entity and an associated company in a non-cooperative jurisdiction (NCJ) without genuine substance.

In this episode, we explore the General Anti-Abuse Rule (GAAR) introduced in Cyprus under the EU’s Anti-Tax Avoidance Directive (ATAD). The GAAR serves as a broad safeguard against aggressive tax planning that may fall outside specific anti-avoidance rules like transfer pricing, CFC, or interest limitation provisions.

We break down how Cyprus applies the GAAR to non-genuine arrangements, what counts as “economic reality,” and how the rule fits into the broader international move toward substance-based taxation.

Under the Cyprus GAAR, any arrangement or series of arrangements that:

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• Are non-genuine, and
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• Have as their main purpose or one of their main purposes the obtaining of a tax advantage that defeats the intent of Cyprus tax law,
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➡️ will be ignored for tax purposes.

When the GAAR applies, the tax position is recalculated as if the arrangement had not occurred, according to the ordinary provisions of the Cyprus Income Tax Law.

An arrangement—or a chain of transactions—is non-genuine when it lacks:

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• Valid commercial reasons, and
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• Economic reality.
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In simpler terms: if the structure exists mainly on paper, without substantive business purpose or risk-taking, the Cypriot tax authorities can disregard it.

This mirrors the “principal purpose test” under OECD and EU frameworks, and complements Cyprus’s CFC and interest limitation rules.

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• GAAR applies broadly, even where no specific anti-avoidance rule covers the transaction.
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• Focuses on intent and substance, not just legal form.
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• Authorities look at the economic reality—who truly earns income, bears risks, and makes decisions.
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• The rule empowers Cyprus to challenge artificial cross-border structures, especially those routing income through low-substance entities.
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• Substance is key: Companies must maintain commercial justification, real operations, and decision-making in line with claimed residence.
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• Documentation matters: Keep evidence of the commercial rationale behind each step in a transaction.
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• Review structures: Especially those involving IP, financing, or holding arrangements where tax motives dominate.

In this episode, we unpack Cyprus’s Controlled Foreign Company (CFC) Rule — a key anti-avoidance measure that ensures profits shifted to low-tax jurisdictions remain subject to taxation where real economic activity occurs.

We explain how Cyprus applies its CFC rule under the EU Anti-Tax Avoidance Directive (ATAD), what counts as a “non-genuine arrangement,” and when exemptions apply.

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• Purpose of the Rule
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• The CFC regime is designed to counteract profit shifting to subsidiaries in low-tax jurisdictions.
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• ➤ In essence, if a Cypriot company controls a foreign entity that exists mainly to avoid tax, the CFC’s income can be taxed in Cyprus.
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• Attribution Principle:
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• Non-distributed income of a qualifying CFC—derived from non-genuine arrangements primarily aimed at obtaining a tax advantage—must be included in the taxable income of the Cypriot controlling entity.
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• Substance Link:
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• Only income tied to assets and risks managed by significant people functions in Cyprus is reattributed.
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• This ensures that only profits linked to genuine Cypriot management are captured.
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• CFC (Controlled Foreign Company):
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• A non-Cypriot entity or foreign permanent establishment (PE) that:
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• • Is controlled directly or indirectly by a Cyprus tax resident (over 50% ownership, voting rights, or profit entitlement); and
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• • Pays less than 50% of the Cyprus tax that would apply if it were resident in Cyprus.
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• Non-Distributed Income:
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• After-tax profit that is not distributed to the Cypriot controlling entity within the tax year plus seven months.
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• Non-Genuine Arrangements:
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• Structures where the CFC’s income is generated by assets or risks controlled by Cyprus-based people, but formally owned abroad, mainly to secure a tax advantage.
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In this episode, we break down Cyprus’s Interest Limitation Rule (ILR) — a cornerstone of the EU’s Anti-Tax Avoidance Directive (ATAD) framework.

The rule is designed to curb profit shifting through excessive interest deductions and ensure Cyprus remains a transparent, compliant, and competitive jurisdiction.

We’ll explain how the 30% EBITDA cap works, what the main exemptions are, and how businesses can manage compliance effectively under this regime.

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• Purpose of the Rule
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• The ILR targets base erosion and profit shifting (BEPS) strategies that exploit intra-group financing.
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• ➤ In simple terms, it stops multinational groups from using high-interest loans in Cyprus or other high-tax jurisdictions to artificially reduce taxable income.
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• Main Mechanism
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• • Deduction Cap: Exceeding Borrowing Costs (EBCs) are deductible only up to 30% of EBITDA.
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• • De Minimis Threshold: A safe harbor of €3 million in net interest expense per year.
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• • Scope: Applies to all Cyprus tax-resident companies and foreign companies with a permanent establishment in Cyprus.
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• What Counts as Borrowing Costs
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• All interest-related and financing expenses — including bond premiums, arrangement fees, and similar costs — are included.
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• Tax-exempt income and carried-forward losses are excluded from EBITDA.
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• Group Application
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• For groups with 75% ownership participation, the 30% limit and €3M threshold apply at the group level.
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The rule provides several targeted exemptions:

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3. Standalone Entities:
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5. Companies not part of a group and without 25% ownership links are exempt.
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9. Financial Undertakings:
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11. Excludes banks, insurers, pension funds, AIFs, and UCITS.
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15. Grandfathered Loans:
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17. Loans concluded before 17 June 2016 are exempt, unless modified.
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21. EU Public Infrastructure Projects:
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23. Projects of clear public interest are carved out from the rule.
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• Disallowed EBCs: Can be carried forward for up to five years.
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• Unused Interest Capacity: Also available for five years.
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• €3M Threshold: Cannot be carried forward.
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Cyprus also allows a full EBC deduction if a company’s equity-to-asset ratio is at least equal to that of its consolidated group (within a 2% tolerance).

All valuations must follow IFRS standards for consistency.

This “escape” recognizes well-capitalized businesses that are not using debt to erode the tax base.

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• Deductibility capped at 30% of EBITDA, with a €3M safe harbor.
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• Applies to both domestic companies and foreign PEs in Cyprus.
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• Several targeted exemptions preserve competitiveness.
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• Five-year carry-forward for both disallowed costs and unused capacity.
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• Equity escape clause rewards genuine capitalization and compliance.
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• EU Anti-Tax Avoidance Directive (ATAD I & II)
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• OECD BEPS Action 4
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• Cyprus Income Tax Law (as amended)
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• IFRS Valuation Standards
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Global Tax Frontiers brings you sharp, policy-driven insights into international tax reform, cross-border structures, and compliance developments shaping global finance.

In this episode, we explore Cyprus’s new defensive tax measures targeting payments to low-tax and EU-blacklisted jurisdictions, set to take effect from 1 January 2026.

These measures mark a major compliance shift, aligning Cyprus with OECD and EU anti-tax avoidance standards while fulfilling commitments under the EU Recovery and Resilience Plan.

We’ll break down what’s changing, how these rules apply to dividends, interest, and royalties, and what global investors and corporate structures need to consider before the effective date.

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• Background & Purpose
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• Cyprus has introduced amendments to strengthen its tax framework and discourage the use of opaque or low-tax jurisdictions. These changes were a condition of the EU Recovery and Resilience Plan, requiring the imposition of withholding taxes or equivalent defensive rules.
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• Effective Date:
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• ✅ 1 January 2026 — new measures apply to outbound payments by Cypriot companies.
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• The New Rules
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• • Dividends:
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• Outbound dividend payments by Cyprus tax-resident companies to associated entities in low-tax jurisdictions will now face a 17% withholding tax.
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• • Interest and Royalties:
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• Payments to associated entities in low-tax jurisdictions will be non-deductible for corporate tax purposes — even if incurred for generating taxable income.
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• • Existing Provisions for EU Blacklisted Jurisdictions:
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• 17% on dividends and interest
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• 10% on royalties
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• ➤ These will broaden in scope from 16 April 2025, harmonizing Cyprus’s rules with EU and OECD standards.
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• General Anti-Abuse Rule (GAAR):
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• A new GAAR targets arrangements lacking commercial substance that are primarily tax-driven.
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• If substance cannot be proven and documented for six years, the defensive measures automatically apply.
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These changes signal a decisive move by Cyprus to align with international anti-abuse standards while maintaining its reputation as a legitimate, compliant, and competitive tax jurisdiction.

Multinationals, holding structures, and investment funds using Cyprus in cross-border setups must review their substance, documentation, and payment flows ahead of 2026.

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• New withholding tax (17%) applies to dividends paid to low-tax jurisdictions.
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• Interest and royalties to such entities become non-deductible from 2026.
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• The GAAR introduces a substance test—six years of documentation required.
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• Aligns Cyprus with EU and OECD anti-tax avoidance frameworks.
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• Businesses should start restructuring or substantiating their cross-border arrangements now.
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In this episode, we unpack Cyprus’s Non-Domicile (Non-Dom) tax regime — one of the most strategic tax residency options in Europe for high-net-worth individuals. Introduced in July 2015, this regime continues to position Cyprus as a compliant, transparent, and highly attractive jurisdiction for international relocation and wealth structuring.

We’ll explain what it means to be a “non-dom,” how to qualify, and the real tax advantages that make Cyprus one of the leading destinations for global citizens seeking efficient tax residency.

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• What Is the Non-Dom Regime?
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• Introduced as part of Cyprus’s 2015 tax reforms, the non-dom status applies to new tax residents who are not domiciled in Cyprus for up to 17 years.
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• The Core Benefit – No SDC Tax:
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• Non-domiciled residents are exempt from the Special Defence Contribution (SDC) tax, which normally applies to dividends and interest.
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• ➤ This means dividend and interest income are completely tax-free in Cyprus.
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• Tax Residency Rules:
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• 183-Day Rule: Spend at least 183 days in Cyprus.
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• 60-Day Rule: Available if you meet certain conditions (such as no tax residency elsewhere and maintaining ties with Cyprus).
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• Cyprus residents are taxed on worldwide income, but foreign tax credits are available to avoid double taxation.
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• Other Major Benefits:
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• • No capital gains tax on the sale of foreign property
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• • No wealth, inheritance, or gift taxes
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• • Employment income exemptions for new residents
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• • Exemptions for dividends, interest, and share gains
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• Who Benefits Most:
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• Entrepreneurs, investors, and retirees looking for EU residency, low taxation on passive income, and a high quality of life under a stable legal and banking system.
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Cyprus has successfully balanced attractiveness with compliance — offering one of Europe’s most generous tax regimes while remaining aligned with OECD, EU, and FATF standards.

The non-dom framework is now a cornerstone of Cyprus’s global competitiveness, making it a leading choice alongside Malta, Portugal, and Italy for high-net-worth relocation.

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• Non-dom status lasts for 17 years after becoming tax resident.
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• Dividend and interest income = 0% tax under the SDC exemption.
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• No wealth, gift, or inheritance taxes — Cyprus taxes income, not capital.
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• The 60-day residency rule allows flexible physical presence for global individuals.
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• Cyprus remains fully compliant with international transparency standards while maintaining a highly attractive personal tax regime.
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• Cyprus Income Tax Law (2015 amendments)
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• Special Defence Contribution (SDC) framework
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• 60-day and 183-day residency rules
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• OECD compliance initiatives

In this episode, we break down Portugal’s newly updated list of “tax haven” jurisdictions for 2025, which now excludes Hong Kong, Liechtenstein, and Uruguay. These updates reflect Portugal’s ongoing effort to align its tax transparency framework with OECD and EU standards, while maintaining one of Europe’s more comprehensive blacklists.

We explore what this means for investors, companies, and advisors working with Portuguese structures — and how this change fits within broader global blacklisting trends.

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• What Is a “Blacklist”?
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• An overview of how countries use jurisdictional blacklists to discourage tax evasion, treaty abuse, and opaque structures.
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• Portugal’s 2025 Update:
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• • Removed: Hong Kong, Liechtenstein, and Uruguay
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• • Still Included: A long list of traditional offshore centers such as Anguilla, Bahamas, Barbados, BVI, Cayman Islands, Panama, Seychelles, and more.
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• EU Context:
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• The EU blacklist currently includes jurisdictions like American Samoa, Anguilla, Panama, Russia, and Vanuatu.
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• The EU grey list includes Armenia, Belize, BVI, Costa Rica, Curaçao, Malaysia, Seychelles, Turkey, and Vietnam.
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• Portugal’s Distinct Approach:
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• Portugal maintains its own national list, which can differ from the EU’s, impacting withholding tax rates, deductibility of expenses, and CFC (Controlled Foreign Company) rules.
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• International Alignment:
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• Portugal has signed agreements to comply with OECD standards on exchange of information and BEPS (Base Erosion and Profit Shifting) recommendations.
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• Tax Consequences:
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• Transactions involving blacklisted jurisdictions can trigger increased withholding taxes (often 35%), deductibility restrictions, and reporting obligations.
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• Compliance Impact:
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• Removal of Hong Kong, Liechtenstein, and Uruguay means lower compliance friction for inbound investments and greater alignment with EU standards.
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• Strategic Planning:
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• Advisors and multinational structures should review their Portuguese CFC exposure and related-party transactions in light of the new list.
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• Portugal’s list remains among Europe’s broadest and most restrictive, despite the 2025 relaxations.
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• The exclusion of Hong Kong, Liechtenstein, and Uruguay signals Portugal’s recognition of improved tax transparency in those jurisdictions.
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• Investors using offshore entities in connection with Portuguese assets should review whether their structures still fall under “blacklist” consequences.
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• Expect continued EU pressure for consistency across member-state lists in 2026.
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• Portugal Ministry of Finance 2025 blacklist update
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• EU Blacklist & Grey List
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• OECD and BEPS compliance frameworks
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• Withholding and CFC implications
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Global Tax Frontiers explores how evolving international tax policies shape cross-border investment, mobility, and compliance strategy for global citizens and advisors.

In this episode, we break down Portugal’s newly updated list of “tax haven” jurisdictions for 2025, which now excludes Hong Kong, Liechtenstein, and Uruguay. These updates reflect Portugal’s ongoing effort to align its tax transparency framework with OECD and EU standards, while maintaining one of Europe’s more comprehensive blacklists.

We explore what this means for investors, companies, and advisors working with Portuguese structures — and how this change fits within broader global blacklisting trends.

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• What Is a “Blacklist”?
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• An overview of how countries use jurisdictional blacklists to discourage tax evasion, treaty abuse, and opaque structures.
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• Portugal’s 2025 Update:
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• • Removed: Hong Kong, Liechtenstein, and Uruguay
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• • Still Included: A long list of traditional offshore centers such as Anguilla, Bahamas, Barbados, BVI, Cayman Islands, Panama, Seychelles, and more.
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• EU Context:
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• The EU blacklist currently includes jurisdictions like American Samoa, Anguilla, Panama, Russia, and Vanuatu.
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• The EU grey list includes Armenia, Belize, BVI, Costa Rica, Curaçao, Malaysia, Seychelles, Turkey, and Vietnam.
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• Portugal’s Distinct Approach:
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• Portugal maintains its own national list, which can differ from the EU’s, impacting withholding tax rates, deductibility of expenses, and CFC (Controlled Foreign Company) rules.
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• International Alignment:
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• Portugal has signed agreements to comply with OECD standards on exchange of information and BEPS (Base Erosion and Profit Shifting) recommendations.
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• Tax Consequences:
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• Transactions involving blacklisted jurisdictions can trigger increased withholding taxes (often 35%), deductibility restrictions, and reporting obligations.
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• Compliance Impact:
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• Removal of Hong Kong, Liechtenstein, and Uruguay means lower compliance friction for inbound investments and greater alignment with EU standards.
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• Strategic Planning:
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• Advisors and multinational structures should review their Portuguese CFC exposure and related-party transactions in light of the new list.
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• Portugal’s list remains among Europe’s broadest and most restrictive, despite the 2025 relaxations.
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• The exclusion of Hong Kong, Liechtenstein, and Uruguay signals Portugal’s recognition of improved tax transparency in those jurisdictions.
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• Investors using offshore entities in connection with Portuguese assets should review whether their structures still fall under “blacklist” consequences.
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• Expect continued EU pressure for consistency across member-state lists in 2026.
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In this episode, we explore how U.S. investors are using Self-Directed IRAs (SDIRAs) to participate in Golden Visa programs across Europe — particularly in Portugal, Greece, and Hungary. While these structures offer exciting possibilities for diversification and residency planning, they also introduce significant IRS compliance risks and potential UBIT/UBTI exposure that many investors overlook.

We unpack the intersection between U.S. retirement law and foreign investment migration programs, highlighting what advisors and investors need to know before funding a Golden Visa through a retirement vehicle.

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• What Is a Self-Directed IRA (SDIRA)?
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• How these accounts expand investment options beyond traditional stocks and bonds.
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• Golden Visa Funds Explained:
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• Investment funds that meet government criteria to qualify for residency programs in Europe.
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• Typical Investment Sectors:
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• • Venture capital
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• • Private equity
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• • Technology companies
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• • Cultural projects
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• Minimum Investment Thresholds:
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• Vary by country, with each program setting its own capital and regulatory standards.
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• Key Investor Considerations:
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• • Due Diligence: Vet fund managers, governance, and underlying assets.
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• • Risk: Recognize volatility and liquidity constraints.
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• • Compliance: Ensure fund eligibility aligns with the host country’s Golden Visa rules.
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• UBIT & UBTI Concerns:
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• Understand how Unrelated Business Income Tax (UBIT) and Unrelated Business Taxable Income (UBTI) can apply to IRA-held investments in active business ventures or leveraged structures.
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• Golden Visa funds can be powerful diversification tools but must be handled with expert guidance.
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• UBIT/UBTI exposure can negate much of the tax deferral benefit of an IRA if improperly structured.
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• Investor due diligence and compliance reviews are essential to avoid disqualification or unexpected taxation.
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• Always consult qualified tax and legal advisers before investing through an SDIRA abroad.

The Wyden Draft Bill, formally part of the Modernization of Derivatives Tax Act discussion, poses a potential existential threat to the Private Placement Life Insurance (PPLI) industry. While 2025 has been dominated by discussions around the One Big Beautiful Bill Act (OBBBA), it’s crucial to revisit 2024’s legislative developments, particularly Senator Ron Wyden’s draft proposal, which could fundamentally alter the tax treatment of derivatives—and, by extension, PPLI structures relied upon by ultra-high-net-worth individuals.

In this episode, we break down the key provisions of the draft bill, explain how they intersect with PPLI, and discuss the possible future of these structures in light of mark-to-market taxation.

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• Mark-to-Market Taxation: All derivative contracts must be treated as sold at fair market value at year-end.
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• Realization of Gains/Losses: Net gains are taxed as ordinary income; net losses generally treated as ordinary losses.
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• Broad Definition of Derivatives: Includes options, futures, swaps, forwards, and similar instruments.
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• Look-Through Rule for Life Insurers: Income, gains, losses, and expenses in a policyholder’s separate account are attributed to the policyholder, threatening PPLI’s core tax-deferred growth benefit.
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• Industry Impact: Potentially renders traditional PPLI structures obsolete for tax-deferred accumulation.
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• Legislative Status: Still a discussion draft, with political hurdles and potential for compromise or grandfathering.
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• PPLI at Risk: The draft bill could eliminate the primary tax advantage that makes PPLI attractive to UHNW individuals.
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• Derivatives Tax Shift: Moving from realization to mark-to-market fundamentally changes how gains and losses are recognized.
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• Uncertain Outcome: Strong industry opposition may lead to softened legislation, but the potential impact is severe.
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• Actionable Insight: Advisors and clients should monitor developments closely and plan for contingencies if the bill progresses.
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