Special Defence contribution is imposed on dividend income, ‘passive’ interest income and ‘passive’ rental income earned by companies tax resident in Cyprus and by individuals who are both Cyprus tax resident and Cyprus domiciled.

Prior to 16 July 2015, individuals were subject to special defence contribution if they were tax resident in Cyprus. As from 16 July 2015, individuals are subject to special defence contribution if they are both Cyprus tax resident and Cyprus domiciled.

An individual is domiciled in Cyprus for the purposes of special contribution for defence if he/she has a domicile of origin in Cyprus per the Wills and Succession Law(subject to exemptions)or if he/she has been a tax resident in Cyprus for at least 17 out of the 20 tax years immediately prior to the tax year of assessment. Anti-avoidance provisions apply.

The special defence contribution is charged at the rates shown in the table below:

Applicable to Companies
1.  Dividends paid by a Cyprus resident company to another Cyprus resident company - Note 1. 0%
2.  If not distributed after a period of four (4) years, dividend is subject to defence contribution (20% in year 2013) - Note 1. 17%
3.  Distribution of dividend by a Cyprus resident company. 17%
4.  Fixed assets allocated to the directors/shareholders, treated as deemed distribution of dividend - see below 17%
5.  Fixed assets allocated / transferred to directors / shareholders
(If originally were donated to the company by the directors / shareholders).
6.  Passive’ interest income - see below. 30%
7.  Interest income arising from ordinary activities or closely related to ordinary activities of the business - Note 2. 0%
8. Rental Income received from immovable property (after deducting 25%). 3%


 Applicable to Individuals
1.  Interest received by an individual both from Cyprus and from abroad. 30%
2.  Interest received by provident funds, Government Saving Certificates & Bonds. 3%
3.  Rental Income received by a Cyprus resident from immovable property (after deducting 25%). 3%
4.  Interest received by an individual with a yearly income less than €12.000. 3%
5.  Dividends received by Cyprus tax resident and Cyprus domiciled individuals. 17%
6.  Dividends received by non-tax resident individuals or Cyprus tax-resident individuals who are not Cyprus domiciled individuals. 0%
7.  Interest received by individuals from Government bonds and Government savings certificates. 3%



  1. Dividends received by a Cyprus tax resident company from other Cyprus tax resident companies are excluded from all taxes, unless they are indirectly declared after the lapse of four years from the end of the year in which the profits were generated, in which case they may be subject to special contribution for defence at 17%.
    Dividends which emanate directly or indirectly out of such dividends on which special contribution for defence was previously suffered are exempt.
    This exemption does not apply if:
    a. more than 50% of the paying company’s activities result directly or indirectly in investment income and
    b. the foreign tax is significantly lower than the tax burden in Cyprus. The tax authorities have clarified through a circular that “significantly lower” means an effective tax rate of less than 6,25% on the profit distributed.
    When the exemption does not apply, the dividend income is subject to special contribution for defence at the rate of 17%.
  2. Such interest income is subject to income tax / corporation tax.

Deemed Dividend Distribution

A Cyprus tax resident company is deemed to have distributed as a dividend 70% of its after tax (note 1) accounting profits (as adjusted for special contribution for defence purposes-note 2).
Such a deemed dividend distribution is reduced with payments of actual dividends paid during the relevant year the profits were generated or paid during the two following years.
On the remaining net amount (if any) of deemed dividend 17% special contribution for defence is imposed to the extent that the ultimate direct/ indirect shareholders of the company are Cyprus tax resident individuals.
When an actual dividend is paid after the deemed dividend distribution date, then if special contribution for defence is due on such a dividend, the tax is imposed only on the amount of the actual dividend paid which is over and above the dividend that was previously deemed to have been distributed and previously suffered special contribution for defence.


  1. The term ‘’tax’’ in addition to corporation tax includes also the special defence contribution, the capital gains tax and any foreign taxes suffered.
  2. A number of adjustments to the accounting profit are required for deemed distribution purposes, including for tax years 2012, 2013 and 2014 if the company has acquired in those years plant, machinery or buildings (excluding private motor vehicles) for business purposes, the cost of these assets will be deductible against the accounting profits.

Disposal of Assets to Shareholder at Less Than Market Value

When a company disposes of an asset to an individual shareholder or a relative of his up to second degree or his spouse for a consideration less than its marke value, the difference between the consideration and the market value will be deemed to have been distributed as a dividend to the shareholder. This provision does not apply for assets originally gifted to the company by an individual shareholdei or a relative of his up to second degree or his spouse.

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 special contribution for defence at the rate of 17%.
This provision does not hold in the case of dissolution under a Reorganisation.


Reduction of Capital

In the case of a reduction of capital of a company, any amounts paid or due to the shareholders over and above the previously paid-in equity will be considered a: dividends distributed subject to special defence contribution at the rate of 17% after deducting any amounts which have been deemed as distributable profits.
The above provisions apply only to the extent that the ultimate shareholder: (direct or indirect) are Cyprus tax resident individuals.

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