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Special Contribution for Defense

Special contribution for defence is imposed on income earned by Cyprus tax residents. 

Income Tax rates
  Individuals
%
Companies
%
Dividend income from Cyprus resident companies 15 Nil
Dividend income from non-Cyprus resident companies 15 Nil (Note1)
Interest income arising from the ordinary activities or closely related to the ordinary activities of the business Nil Nil
Interest income arising from government savings bonds and government development bonds. 3 10
Other interest 10   10
Rental income (reduced by 25%) 3 3
Profits of semi-government organizations N/A 3

Notes

  1. This exemption does not apply if:
    • more than 50% of the paying company’s activities result directly or indirectly in investment income, and
    • the foreign tax is significantly lower than the tax rate payable in Cyprus

    When the exemption does not apply, the dividend income is subject to special contribution for defense at the rate of 15%
  2. In the case where the total income of an individual (including interest) does not exceed €12.000 in a taxable year, then the rate is reduced to 3%.
  3. Interest income earned by a provident fund and by the Social Insurance Fund is subject to special contribution for defence at the rate of 3%.

Payment Dates

Special contribution for defence on rental income and trading profits is payable on 30 June and 31 December each year.

In the case of interest and dividends received gross, any defence due is payable at the end of the month following the one in which they were received.

Other Conditions

Dividends received from companies net of 20% withholding tax under the legislation that was in force up to 31 December 2002 and not distributed as dividends up to 31 December 2002 can be distributed within six years from the date of their receipt without any further tax deduction.

Foreign taxes paid can be credited against the defence tax liability irrespective of the existence of a double tax treaty.

Deemed dividend distribution

A Cyprus resident company, pays defence tax of 15% (3% on deemed dividend distribution of Collective Investment Schemes) on dividends for deemed distribution representing the 70% of accounting profits for the year, after deducting taxation for the year and before deducting losses carried forward from a previous year, taking into account the dividends paid out in a two year period relating to residents of Cyprus.

The deemed distribution provisions do not apply to profits which relate to non-resident shareholders.

In the case of a person not being resident in the Republic receiving dividends from a company which is resident in the Republic, emanating from profits which at any stage were subject to deemed distribution, the special contribution paid as a result of the deemed distribution which is attributable to such person is refundable.

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