1. Dividends
- Dividends paid by a Cyprus tax resident company to a Cyprus tax resident individual are paid net of 20% withholding SDC.
- Dividends paid by a Cyprus tax resident company to companies or to individuals who are not Cyprus tax residents are paid gross without any deductions for SDC.
- Dividends paid a Cyprus tax resident company to another Cyprus tax resident company, are not subject to SDC unless the dividends are paid indirectly (i.e. from an intermediate holding to its holding) after 4 years from the end of the year in which the underlying profits were earned.
- Dividends received by companies from non Cyprus tax resident companies are not subject to SDC. This exemption however does not apply if:
-The company paying the dividend engages in more than 50% of its activities in producing investment income, and
– The foreign tax burden on the company paying the dividend is substantially lower than that in Cyprus. Substantially lower meaning less than 50% of the applicable corporation tax rates in Cyprus (currently 12,5%).
2. Deemed distribution
Resident companies will be deemed to have distributed to their Cyprus tax resident shareholders (individuals and companies) 70% of their accounting profits after two years from the end of the year in which the profits were generated and must account for 20% SDC thereon.
Accounting profit is the profit after tax, calculated in accordance with acceptable accounting standards and excludes any revaluations of movable or immovable property.
In addition to corporation tax the following taxes are taken into account when calculating accounting profit:
- SDC
- Capital Gains Tax
- Any foreign tax that has not been credited against Cyprus tax
SDC on deemed distributions is paid by the Company, on behalf of its tax resident shareholders. If an actual dividend distribution takes place within the 2 year period then the deemed distribution is reduced by this and the SDC is adjusted accordingly.
If a dividend distribution out of the accounting profits of a given year is made after the end of the 2 year period then the withholding SDC is reduced by the SDC paid on the deemed distribution (i.e. no withholding tax for distributions up to 70% of the accounting profits).
Deemed dividend distribution does not apply to non resident shareholders (direct or indirect). In the case when a non tax resident person receives dividends from a Cyprus tax resident company, resulting from profits which at any stage were subject to deemed distribution then the SDC attributable to this person is refundable.
In case of a Company disposes of an asset to an individual shareholder or to a shareholder’s relatives up to second degree (including their spouses) , then the difference between the market value of the underlying asset and any consideration received will be deemed as dividend contribution and SDC will apply. This will not apply in the case that the underlying asset was received by the Company by way of gift by the shareholder or by the shareholder’s relatives up to second degree (including their spouses).
3. Interest
- Interest derived from the normal carrying on of a business, including interest closely connected with the normal carrying on of a business is not considered interest but profit.
- Interest earned by individuals from Government bonds is subject to SDC at the rate of 3%.
- Interest earned by provident funds, from sources within the Republic of Cyprus is subject to SDC at the rate of 3%.
- Any other interest, whether earned from sources within or outside Cyprus, is subject to SDC at the rate of 30% (15% prior to 29 April 2013).
- Bank interest from Cyprus banks is received net of 30% (15% prior to 29 April 2013) withholding tax.
- Interest earned by individuals whose total income including interest does not exceed €12.000 is subject to SDC at the rate of 3%. The deduction at source however (if source in Cyprus) will be 30% (15% prior to 29 April 2013) and the individual may apply to the Inland Revenue for a refund of the extra 27% (12% prior to 29 April 2013).
4. Rental Income
In the cases were the tenant of a property in Cyprus is a legal person, rent is paid net of withholding SDC of 2,25%. The tenant has the obligation to pay the tax withheld on a monthly basis to the Inland Revenue. When the tenants are physical persons the obligation of payment of the 2,25% SDC lies with the landlord.
5. Table
Cyprus tax residents are liable to Special Defence Contribution (SDC) as follows:
|
Individuals % |
Companies % |
|
|---|---|---|
| Dividends from Cyprus resident company/non resident company | 20 | – |
| Other interest income | 30 | 30 |
| Interest income from Cyprus Government Bonds and Loan Stocks | 3 | 30 |
| Rental income (3/4 of) | 3 | 3 |
Theodorou Law is a Cyprus law firm with Cyprus lawyers and other legal experts on legal matters involving Cyprus law, EU law and international law. The above should be used as a source of general information only. It is not intended to give a definitive statement of the law and is subject to the disclaimer.
