Special Contribution for Defence

  • On dividends payable
    • There is a 17% withholding tax on dividends (20% in 2013) distributed to shareholders who are residents of Cyprus, but there is no tax on dividends paid to non-resident shareholders.
    • There is a deemed distribution of dividends for an amount equal to 70% of profits if not actually distributed within two years after the end of the tax year in which the profits arose and payment of 17% (20% in 2013) withholding tax on deemed distribution. Profits allocated to non-resident shareholders are not subject to this tax.
  • On dividends receivable
    • Dividends received from a foreign company are not subject to withholding tax of 17% (20% in 2013)provided that:
      • Not more than 50% of the paying company's activities result in investment income; and
      • The foreign tax is not significantly lower (i.e. less than 6.25%) than the tax rate payable in Cyprus;
    • There is no tax on dividends paid by a Cyprus resident company to another Cyprus resident company for the first four years (thereafter it is 17%).
  • On interest earned
    • There is a 30% (was 15% up to 29/4/2013) tax on any interest earned by any individual or company resident in Cyprus.
    • Interest income arising from the ordinary activities is subject to corporation tax and is exempt from special contribution for defence.
  • On interest and royalties payable
    • There is no withholding tax on payment of interest and royalties to non-resident individuals or companies.
  • On rents
    • There is a 3% withholding tax on rents earned by a Cyprus resident (after deduction of 25%).
    • Rental income is also subject to personal income tax and corporation tax.
  • Note: The special defence contribution on dividends, interest and rents is treated as income tax for the purposes of Double Tax Treaties as well as for the purposes of unilateral tax credit.
  • Foreign tax
    • Any foreign taxes paid can also be credited against the special contribution for defence tax liability.

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