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Special Defence Contribution

Certain types of income are taxed under Special Defence Contribution tax (SDC)

Exemptions from SDC:

Dividends between Cyprus Tax resident companies are exempt from this tax.

Dividends received by a Cyprus company from a non resident company (NRC) are exempt from tax if:

  • less than 50% of the NRC’s activities are of an investment nature and
  • the foreign tax burden of the NRC is less than 5%.

Dividends received from resident or non-resident companies which are not exempt from this tax as above are subject to SDC at 20% for the years 2012 and 2013 and 17% thereafter. Non-resident persons are not liable to SDC.

Deemed dividend distribution

If a Cyprus tax resident company does not distribute by way of a dividend at least 70% of its accounting profits, within two years from the end of the tax year, then the company is deemed to have distributed such profits and is liable to pay 20% SDC for the years 2012 and 2013 and 17% SDC thereafter on the deemed dividend distribution applicable to its shareholders who are Cyprus tax residents.

A non Cyprus tax resident receiving dividends from profits subject to a deemed distribution, is eligible to a tax refund.

Interest Income

Passive Interest income (i.e. not arising from the ordinary activities of the company) is subject to 15% SDC.

Tax credit for tax paid abroad

Tax paid abroad on income which is subject to SDC is given as a tax credit against the payable SDC.