Interpretative Circular 13, issued by the Cyprus Tax Department on November 1 2017, clarifies the treatment of the following additional tax imposed under the Assessment and Collection of Taxes Law1 for the purposes of calculating the deemed dividend distribution for special defence contribution (SDC) tax:

  • 10% additional tax imposed under Article 26(1); and
  • 5% additional tax imposed under Article 50(4).2

Under the Special Defence Contribution Law 2002,3 if a Cyprus resident company does not distribute a dividend within two years after the end of a tax year, it is deemed to have distributed 70% of accounting profits after tax for that tax year, less any dividends that have been paid out of those profits. SDC tax is charged on the proportion of the deemed distribution that is applicable to Cyprus-resident shareholders.

The circular specifies that any amounts of additional tax arising under Articles 26(1) and 50(4) of the Assessment and Collection of Taxes Law are to be treated as taxes, and that penalties and interest will be imposed if they are not paid on time. They are included under the term 'corporation tax' and are deductible from accounting profits for the purpose of calculating the deemed distribution. Any penalties and interest for late payment are not deductible.

The circular applies to all open cases. However, cases which have been examined and resolved to no objection will not be reopened.


(1) Law 4/1978.

(2) The additional tax of 5% under Article 50(4) was abolished with effect from July 14 2017 by Law 97(I)/2017.

(3) Law 117(I)/2002 as amended.

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.