Special Contribution for Defence (SDC) is imposed on income earned by Cyprus tax residents. Non tax residents are exempt from SDC. It is charged at the rates shown in the table below:

Dividend income from Cyprus resident companies 17 (5) Nil
Dividend income from non-Cyprus resident companies 17 (5) Nil (under conditions) (1)
Interest income arising from the ordinary activities or closely related to the ordinary activities of the business Nil Nil
Other interest 30 (2)(3)(5) 30 (4)
Rental income (reduced by 25 %) 3 (5) 3


  1. Dividend income from abroad is exempt from SDC provided that:
    1. no more than 50 % of the paying company's activities result directly or indirectly in investment income or
    2. the foreign tax burden is not significantly lower than the tax rate payable in Cyprus. The Tax Authorities have clarified that significantly lower, means a tax burden rate below 6.25%. When the exemption does not apply, the dividend income is subject to SDC at the rate of 17 %.
  2. Interest income from Cyprus Government bonds and Corporate bonds and all interest earned by a provident fund is subject to SDC at 3% (instead of 30%)
  3. Where the total income of an individual including interest does not exceed €12.000 in a taxable year, then the rate is reduced from 30 % to 3 %.
  4. Bank fixed deposit interest.
  5. Dividend income, rental income and interest income from bank accounts is exempt for taxation under SDC for the ''non domicile'' individuals (explained in section below).

Due dates:

  • SDC on rental income and on trading profits of semi-government organizations is payable in 6 monthly intervals on 30 June and 31 December each year.
  • SDC due on interest and dividends received gross is payable at the end of the month following the month in which they were received.
  • As from 1 July 2011 companies and partnerships that pay rent in Cyprus should withhold SDC at source at the rate of 2.25% of the amount of the rent. The amount withheld must be paid to the Revenue by the end of the following month.

Deemed dividend distribution

The deemed dividend distribution rules are applicable only in respect of companies whose ultimate beneficial shareholders are Cyprus tax resident domiciled persons.

If a Cyprus resident company does not distribute at least 70 % of its accounting profits as dividends within two years from the end of the tax year in which they incurred then:

  • 70 % of accounting profits (after specified adjustments for  revaluations etc) are deemed to have been distributed.
  • 17 % SDC is imposed on deemed dividend distribution applicable to shareholders who are Cyprus tax residents domiciled persons, including higher level Cyprus parent companies.
  • Deemed distribution is reduced with payments of actual dividends which have already been paid during the two years from the profits of the relevant year.

When an actual dividend is paid after the deemed dividend distribution, then SDC (if any) is imposed only on the additional dividend paid not previously subject to deemed dividend distribution.

When dividends have been paid by a Cyprus company to another Cyprus company in a multi layered holding structure, the SDC on the dividend payment must be settled within 4 years, preventing indefinite deferral.

Company dissolution

The cumulative profits of the last five years prior to the company's dissolution, which have not been distributed or deemed to have been distributed, will be considered as distributed on dissolution and will be subject to SDC at the rate of 17 %. This provision does not apply in the case of dissolution under reorganization.

Reduction of capital

In the case of reduction of capital of a company, any amounts paid or due to the shareholders up to the amount of the undistributed taxable income of any tax year calculated before the deduction of losses from subsequent years, will be considered as dividends distributed subject to Special Contribution for Defence at 17 % after deducting any amounts which have been already deemed as distributed. These provisions do not apply where the shareholders are non-Cyprus residents.

Disposal of assets to shareholders at an amount less than its market value

In case where a company has disposed an asset to an individual shareholder (or to a second degree relative of him) for a consideration less than the current market value of the asset, then the difference between the two will be deemed to have been distributed as a dividend to the shareholder.

The above does not apply in cases where the asset has been originally gifted by the shareholder (or by the second degree relative) to the company.

Collective Investment Schemes

The rate on deemed dividend distribution for Collective Investment Schemes is 3 % (the actual dividend distribution is subject to 17 % in respect of Cyprus tax resident investors only – NIL in respect of foreign tax resident investors).

Non Domicile Regime (Nom-dom)

A Cyprus tax resident individual who is not domiciled of Cyprus is exempt from SDC in Cyprus and is therefore not subject to taxation on interest or dividends whether actual or deemed.

A non-dom is:

  • Any individual who has a domicile of origin in Cyprus in accordance with the Wills and Succession Law but has not been a Cyprus tax resident for a period of 20 consecutive years prior to the year of assessment.
  • Any other individual who has not been a tax resident of Cyprus for at least 17 years out of the last 20 years prior to the year of assessment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.