CyprusLiving

Special contribution for defence
Special contribution for defence is imposed on certain income earned by Cyprus tax residents. Non-tax residents are generally exempt from special
contribution for defence. It is charged at the rates shown in the table below:
Tax rates
Individuals Legal entities

% %

Dividend income from Cyprus resident companies 20(1) Nil (1)
Dividend income from non-Cyprus resident companies 20 Nil (2)
Interest income arising from the ordinary
activities or closely related to the
ordinary activities of the business Nil (3) Nil (3)
Other interest income 15(4) 15(4)
Rental income (reduced by 25%) 3 (4)(5) 3 (4)(5)

Notes:
1. Dividends declared by a Cyprus tax resident company to another Cyprus tax resident company after the lapse of four years from the end of the year in which the profits were generated are subject to 20% defence contribution. Dividends which emanate directly or indirectly out of such dividends on which special contribution for defence was previously suffered are exempt.
2. Dividend income from abroad is exempt from defence fund contribution.
This exemption does not apply if:
•• more than 50% of the paying company’s activities result directly or indirectly in investment income and
•• the foreign tax is significantly lower than the tax burden in Cyprus. The tax authorities have clarified through a circular that “significantly lower” means a tax burden rate below 5%
When the exemption does not apply, the dividend income is subject to special contribution for defence at the rate of 20%.
3. Such interest income is subject to personal income tax / corporation tax.
4. Interest income from Cyprus government savings bonds and development bonds and all interest earned by a provident fund is subject to special contribution for defence at the rate 3% (instead of 15%).
In the case where the total income of an individual (including interest) does not exceed €12.000 in a tax year, then the rate is reduced to 3%.
When the tenant is a Cyprus company, partnership, the state or local authority Special contribution for defence on rental income is withheld at source and is payable at the end of the month following the month is which it was withheld. In all other cases the special contribution for the defence on rental income is payable by the landlord in 6 monthly intervals on 30 June and 31 December each year.
For interest and dividends paid to Cyprus tax residents any defence due is withheld at source and is payable at the end of the month following the month in which they were paid.
However, special contribution for defence on dividends, interest and rental income from abroad is payable in 6 month intervals on 30 June and 31 December each year.
5. Rental income is also subject to personal income tax / corporation tax.
Foreign taxes paid can also be credited against the defence tax liability.