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Special contribution for defence

Special contribution for defence is imposed on dividend and rental income by Cyprus tax residents as well on interest income non arising or not closely related to the ordinary activities of the business. Non-tax residents are generally exempt from special contribution for defence.

Foreign taxes can be allowed as a credit against the Special contribution for defence tax liability, irrespective of the existence of a double tax treaty with the foreign country.

Special contribution for defence is imposed as follows:


Type of income

Special contribution
for defence rate for
individuals

(1)

Special contribution
for defence rate for
legal entities

 

 

%

%

Dividend income from Cyprus tax resident companies

17*

0*

Dividend income from non-Cyprus tax resident companies

17

0**

Interest income arising from the ordinary activities or closely related to the ordinary activities of the business

0***

0***

Other interest income (bank interest and other non-trading interest)

30****

30****

Gross rental income (reduced by 25%)

3 *****

3 *****

Notes

*Dividends received by a Cyprus tax resident company from other Cyprus tax resident companies are excluded from all taxes. In the care that they are indirectly declared after four years from the end of the year in which the profits were arose, they may be subject to special contribution for defence at the rate of 17%.
Special contribution rate is as follows: from 1/1/2014: 17%, 2012-2013: 20%, 31/8/2011-31/12/2011: 17%, 2003-30/8/2011: 15%.
**Under special conditions
***Interest income arising from the ordinary activities or closely related to the ordinary activities of the business is subject to personal income tax / corporation tax.
****The Special contribution for defence rate on interest income is as follows: from 29/4/2013: 30%, 31/8/2011-28/4/2013: 15%, 2003-30/8/2011: 10%).
In the case where the total income of an individual, including interest, does not exceed €12.000 in a tax year, then the special contribution for defence tax rate on interest income is reduced to 3%.
Interest from Government Savings Certificates, Government Bonds and deposits with the Housing Finance Corporation, as well as interest earned by approved provident funds, is subject to defence contribution at 3%.
*****Rental income is also subject to personal income tax / corporation tax.
Where 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 by the tenant 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.

(1) Prior to 16 July 2015 individuals were subject to Special Contribution for Defence if they were tax resident in Cyprus. As from 16 July 2015 individuals are subject to Special Contribution for Defence if they are both Cyprus tax resident and Cyprus domiciled. An individual is domiciled in Cyprus for the purposes of Special Contribution is he/she has a domicile of origin in Cyprus per the Wills and Succesion Law (with certain exceptions) 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.

The above should be used as a source of general information only. It is not intended to give a definitive statement of the Law and is subject to the Disclaimer.

For further details on these issues, please do not hesitate to contact us.