Special Contribution for Defence

Rates of SDC

Dividend Income17%
Interest Income (note 1)30%
75% of Gross Rental Income3%

Note 1: SDC on Interest income is reduced to 3% if:

  1. Recipient is an individual and interest income derives from Cyprus Government savings bond or Corporate bonds
  2. Derives from approved provident fund or social insurance fund
  3. Recipient is an individual ant their total income does not exceed €12.000


Dividend income

SDC is imposed provided that the recipient of dividend is tax resident in the Republic and domiciled.

Deemed Dividend Distribution

A Cyprus tax resident is deemed to have distributed 70% of its profits in the form of
dividends at the end of the two years from the end of the tax year in which such profits were generated. SDC is imposed to the extent that to the extent that shareholders are Cyprus tax residents and domiciled.

Transfer of an asset by a company to its individual shareholder at an undervalue

In the case where a company disposes or gifts an asset to its Cyprus
tax resident and domiciled shareholder individual (or to a relative of up to second degree), without consideration or for a consideration
which is less than the market value of the asset disposed, it is deemed that the company has distributed dividends to its shareholder, equal to the difference between the market value of the asset and the amount of the consideration.

This provision does not apply in respect of an asset which was originally gifted to the Company by the individual shareholder (or by a relative of up to second degree).

Reduction of capital

The amount paid to an individual Cyprus tax resident shareholder and domiciled from a reduction of share capital in excess to the amount actually paid by the shareholder is considered to be a form of ‘deemed dividend’ which is subject to SDC.

Company dissolution

The profits of the last five years prior to the dissolution which have not been distributed or which have not been deemed to have been distributed are deemed to be distributed on the dissolution.

Interest Income

Interest income received as a result of the ordinary carrying on of
the business or closely connected to the ordinary carrying on of the business is not considered interest for SDC purposes and is thus exempt from SDC.

Rental Income

SDC is imposed on 75% on Gross rental incomes at a rate of 3% (effective rate 2.25%).

In all cases any foreign tax suffered outside the Republic and has not been credited under income tax, can be credited under SDC.


Dividend income

Dividends received from another Cyprus tax resident company is not subject to SDC unless it falls under the 4-year non-exemption rule (i.e. a dividend that is indirectly paid after 4 years from the end of the year in which the profits were generated are subject to SDC).

Dividends received by a Cyprus tax resident company from a non-Cyprus tax resident company are exempt from SDC, unless

  1. More than 50% of the activities of the non-resident dividend paying company lead to investment income;
  2. The foreign tax burden on the income of the dividend paying company is substantially lower than the tax burden of the Cyprus tax resident company or the non-resident company which has a permanent establishment in the Republic.

Interest Income

Interest income that is not of a trading nature or closely associated with the ordinary carrying on of a business is subject to SDC.

Rental Income

SDC is imposed on 75% on Gross rental incomes at a rate of 3% (effective rate 2.25%).