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 a resident or non-resident companies that 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 for a tax refund.
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.