SPL
         
Home | Support   +(357) 22510057
 
 


 


You are here:  Homepage - Why Cyprus - Tax Regime - Special Defence Contribution

Special Defence Contribution

The types of income and applicable rates that are subject to the Special Defence Contribution are presented below:
 
Taxation on Dividends payable
 
When a Cyprus Tax Resident receives dividend income 20% is withheld on the gross amount of dividends remitted. The relevant percentages of withholding taxes were 15% up to 31st August 2011 and 17% up to 31st December 2011.
 
When a non Cyprus Tax Resident receives dividend income from a Cyprus Company no tax is withheld under the provisions of the Special Defence Contribution on any dividends remitted. 
Deemed Dividend Distribution
 
If a Cyprus tax resident company does not distribute seventy per cent (70%) of its accounting profits accruing in a financial year in the form of a dividend to its Cyprus tax resident shareholders (Companies and Individuals) within two years following the year to which the profits relate, then 70% of the company’s accounting profits will be deemed to have been distributed and Special Defence Contribution tax will be imposed at a rate of twenty per cent (20%) on the deemed distribution amount.  
The amount of dividends deemed to have been distributed is reduced by any actual dividends which have been distributed during the two year period starting from the end of the year of assessment to which the profits relate.
 
If the ultimate shareholders of a Cyprus tax resident company are non tax residents of Cyprus, deemed dividend distribution provisions are not applied. 
 
Thus, profits arising in a Cyprus company can be accumulated for as long as the shareholders wish, since the shareholders are not tax residents of Cyprus, for further financing or reinvestment in the group if so desired, without any obligation to distribute the dividends.

Dividends receivable by a Cyprus Company
 
Dividends receivable will also be exempt from the Special Contribution for Defence (SCD) tax if the following conditions are satisfied:
 
The company paying the dividend must not engage more than fifty percent directly or indirectly in activities which lead to passive income (non-trading income); and 
The foreign tax is not substantially lower than the tax rate payable in Cyprus;
If the above conditions are not satisfied, then dividends will be subject to Special Contribution for Defence tax (SCD) at the rate of fifteen percent (20%).  
 
 
 
Interest
Interest Income is subject to Defence Tax Contribution at the rate of 15%. As of 01 January 2013, the Defence Contribution increase by 15% and therefore will be 30%.
 
It applies only to the Interest Income that is not arising from the ordinary course of the business or is not closely connected with the business of the Company.
 
Otherwise, if the interest income arises in the ordinary course of the business including interest closely connected with the carrying on of the business, and interest earned by open-ended or close-ended collective investment schemes is not taxed under the Special Defence Contribution.
 
It is considered as trading income, taxed under the provisions of the Income Tax Law at the flat rate of 10%.Please note that as of 01 January 2013, the Cyprus Income Tax rate increased by 2,5% and therefore it is 12,5% flat rate.
 
Rental Income
 
There is a 3% Special Defence Contribution on rents earned by a Cyprus tax resident (Company or Individual), after a deduction of the 25% from the gross amount of the rental income.
 
Allowance for foreign tax
 
The Special Defence Contribution charges are treated as income tax for the purposes of Double Tax Treaties as well as for the purposes of unilateral tax relief.
 
 
Deadlines for the Payment of Special Defence Contribution 
 
Rental Income
The Special Defence Contribution is payable in 6 monthly intervals on 30 June and 31 December each year.
 
Interest
The Special Defence Contribution is payable at the end of the month following the month in which they were accrued or received, whichever is earlier.
 
Actual Dividends
The Special Defence Contribution is payable at the end of the month following the month in which they were accrued or received, whichever is earlier.
 
Deemed Dividend Distribution
Profits subject to Deemed Dividend Distribution should be reported and be paid by 31 January following the end of the two year period.
 
Interest on late payments of Special Defence Contribution
5% interest per day on the due amount: 01 December 2011 – up to date
5,35% interest per day on the due amount: 01 January 2010-31 December 2010
8% interest per day on the due amount: 01 January 2007-31 December 2009
9% interest per day on the due amount: up to 31 December 2006
 
Enter your email and receive  our newsletters directly to your inbox
Legal Privacy  |   Disclaimer
 
Copyright © SPL. All Rights Reserved.

 

Back to top    
       

 


Design By: LightBlack