YIOLA STAVRAKI
L.L.C.
ADVOCATES

Dividends Taxed in Cyprus – Special Contribution for Defence

    Dividend income is subject to special contribution for defence earned by companies which are tax resident in Cyprus, which amounts as follows:

    Tax rates Individuals (%) Tax rates Legal Entities (%)
    Dividend income from Cyprus tax resident companies 17 % (see note 5) 0 % (see note 2)
    Dividend income from non-Cyprus tax resident companies 17 % (see note 5) 0 % (see note 3)
    Interest income arising from the ordinary activities or closely related to the ordinary activities of the business 0 % (see note 4) 0 % (see note 4)
    Other interest income 30 % (see note 5) 30 % (see note 5)
    Rental income (reduced by 25%) 3 % (see notes 5 and 6) 3 % (see notes 5 and 6)


    NOTES:

    1. Legal entities are subject to Special Contribution for Defence (“SCD”) PROVIDED ONLY that they are tax resident in Cyprus;

      Individuals, on the other hand, (as of 16/07/2015) are subject to SCD if they are both Cyprus tax resident and Cyprus domiciled. The test of domicile in Cyprus, for the purposes of SCD, is whether the person has a domicile of origin in Cyprus as per the Cyprus Wills and Succession Law (subject to certain limited exceptions) of if such a person has been a tax resident in Cyprus for at least 17 out of the 20 tax years immediately prior to the tax year of assessment. Anti-avoidance provisions apply in that respect;

    2. Dividends received by a Cyprus tax resident company from other Cyprus tax resident companies are exempt, subject to certain anti-avoidance rules;

    3. As of 1/01/2016, this only applies to dividends which are not deductible for tax purposes by the paying company;

    4. Such interest income is subject to personal income tax / corporate tax;

    5. The SCD rate on interest income of 30 % is effective for interest received or credited as of 29/04/2013 onwards;

      Regarding Cyprus sourced rental income where the tenant is a Cyprus company, partnership, the state or local authority, SCD on rental income is withheld at source and is payable at the end of the month following the month in which it was withheld. In all other cases, the SCD on rental income is payable by the landlord in 6 monthly intervals on 30 June and 31 December per annum.

      With regard to Cyprus sourced interest and dividends, SCD is withheld at source and is payable at the end of the month following the month in which they were paid.

      On the other hand, when it comes to foreign sourced dividends, interest and rental income SCD is payable in 6-month intervals on 30 June and 31 December per annum.

    6. Finally, rental income is also subject to personal income tax / corporate tax.