3016 Limassol, Cyprus

41, Misiaouli & Kavazoglou Street, 2nd Floor, Office 201

+357 25 87 14 14

41, Misiaouli & Kavazoglou Street, 2nd Floor, Office 201

+357 96 63 66 26

WhatsApp, Viber​

Кипр – специальный налог на оборону

Special Contribution for Defence (SDC), is imposed on certain income earned by Cyprus tax residents. Non-tax residents are generally exempt from SDC.

Cyprus tax residents are liable to (SDC) as follows:

  • Dividends received by Cyprus tax resident individual ‐ 17%
  • Dividends received by Cyprus tax resident company – 0% (under certain conditions)
  • Interest income – 30 %
  • Interest income from Government Bonds – 15 %
  • Interest earned by an approved provident fund – 3 %
  • Interest earned by the Social Insurance Fund – 3 %
  • Rental income (less 25%) – 3 %


Dividends paid by a Cyprus tax resident company to a Cyprus tax resident individual are paid net of 17% withholding SDC.

Dividends paid by a Cyprus tax resident company to companies or to individuals who are not Cyprus tax residents are exempt from SDC.

Dividends paid by a Cyprus tax resident company to another Cyprus tax resident company, are not subject to SDC, unless the dividends are paid after 4 years from the end of the year in which the profits which were distributed as dividends arose. Dividends paid out of income emanating directly or indirectly from dividends on which SDC was previously suffered, are exempt from SDC.

Dividends received by Cyprus tax resident companies from non-Cyprus tax resident companies are not subject to SDC. This exemption however does not apply if:

1. The company paying the dividend engages in more than 50% of its activities in producing investment income;


2. The foreign tax burden on the company paying the dividend is substantially lower than that in Cyprus (Substantially lower meaning less than 50% of the applicable corporation tax rates in Cyprus).

In case of Cyprus sourced dividends, the tax is withheld at source. SDC tax on foreign sourced dividends must be paid on a self-assessment basis by the individual taxpayer in June and December.

Deemed Distribution

Resident companies will be deemed to have distributed to their Cyprus tax resident shareholders (individuals and companies) 70% of their accounting profits after 2 years from the end of the year in which the profits were generated and must account for 17% defence contribution thereon.

Special Defence Contribution on deemed distributions is paid by the Company, on behalf of its tax resident shareholders. If an actual dividend distribution takes place within the 2 year period then the deemed distribution is reduced by this and hence the defence contribution is adjusted accordingly.

The deemed distribution rules will not apply to the profits attributable to resident shareholders of a Cyprus resident company provided that such profits are indirectly attributable to ultimate shareholders which are non-resident.

In the case where a non-tax resident person receives dividends from a Cyprus tax resident company, resulting from profits which at any stage were subject to deemed distribution then the SDC attributable to this person is refundable.

Disposal of an Asset

In situations where a Company disposes of an asset to an individual shareholder, or to a shareholder’s relatives up to second degree (including their spouses), then the difference between the market value of the underlying asset and any consideration received will be deemed as dividend contribution and defence contribution will apply. This will not apply in the case that the underlying asset was received by the Company by way of gift by the shareholder or by the shareholder’s relatives up to second degree.

Dissolution of Companies & Capital Reduction

Companies that decide to proceed with voluntary liquidation, must submit within one month from the date of the relevant resolution, a deemed dividend declaration and pay the SDC in relation to the profits of the current year and the 2 preceding years.

The aggregate undistributed profits of the five years prior to a Company’s dissolution, for which no deemed distribution was applied, are considered as distributed on dissolution and are subject to SDC.

Any profits arising during the liquidation process will not be subject to deemed distribution, provided that such profits will be used entirely for the repayment of creditors and will not be any balance available for distribution to shareholders. Moreover any SDC cannot exceed the net value of the assets distributable to shareholders.

In case of capital reduction, any amounts paid to individual shareholders in excess of the amount paid as capital by the relevant shareholder, will be deemed as dividend and be subject to SDC.

The above provisions do not apply if the shareholders of the Company are not Cyprus tax residents.


Interest derived from ordinary business activities including interest deemed to be closely connected with business activities, is not treated as interest but as business profits and is therefore not subject to the SDC. Such interest is fully subject to corporation tax at the rate of 12.5%.

The concepts “interest derived from ordinary business activities” and “interest closely connected with business activities” are defined in Circular 2003/8, issued by the Commissioner of Income Tax.

Accordingly, the former means:

(a) interest income of banking businesses, including all banking units, cooperatives and businesses having as a primary object the provision of loans, e.g. the Housing Finance Corporation;

(b) interest income of financing businesses offering hire-purchase, leasing and other financing arrangements.

The latter means:

(a) interest income from trade debtors;

(b) interest income of insurance companies;

(c) interest income on commercial (current) bank accounts;

(d) interest income of companies that act as a vehicle for the purpose of financing group companies (e.g. a holding company, a subsidiary company or an associated company that borrows money and subsequently lends these to other group companies);

All other cases that do not fall under the above categories should be submitted in writing to the Commissioner of Income Tax for his consideration.

Interest earned by individuals from Government bonds is subject to SDC at the rate of 3%.

Interest earned by individuals whose total income including interest does not exceed €12.000 is subject to SDC at the rate of 3%.

Interest earned by provident funds, from sources within the Republic of Cyprus is subject to SDC at the rate of 3%.

In case of Cyprus sourced interest, the tax is withheld at source. SDC tax on foreign sourced interest must be paid on a self-assessment basis by the individual taxpayer in June and December.


Rental income received by a Cyprus resident is taxable under both the income tax and the SDC tax.

In the cases were the tenant of a property in Cyprus is a legal person, rent is paid net of withholding SDC. The tenant has the obligation to pay the tax withheld on a monthly basis to the Inland Revenue. (The amount to be deducted and paid over to the tax authorities is 3% of 75% (i.e. 2.25%) of the gross rental amount).

When the tenants are physical persons the obligation of payment of the SDC lies with the landlord.

This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. Authors or the publishers accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.


Наши социальные сети

Sign up for our Newsletter

Stay up to date on the latest industry news, tax calendar events, and our team achievements

Это поле используется для проверочных целей, его следует оставить без изменений.