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Amendments to the Special Contribution for the Defence of the Republic Law

Cyprus

The first package of austerity measures was voted by the House of Representatives on 26 August 2011. The package included changes to various tax laws including the Special Contribution to Defence of the Republic Law. Taxand Cyprus looks at the changes and implications on the tax liability of both individuals and companies.

Raising the defence tax rate on interest from 10% to 15%
Interest received by Cypriot tax residents will be subject to a 15% tax rate for the Special Contribution for the Defence of the Republic, as opposed to the previous 10% tax rate. Individuals, as well as companies, are equally liable to such taxation. Interest received by companies, if resulting from the ordinary course of the business or closely connected with the ordinary course of the business, will be exempt from defence tax. In such cases, the corporate tax rate of 10% applies.

Raising the defence tax rate on dividends from 15% to 17%
Dividends received by Cypriot tax residents will be subject to a 17% tax rate for the Special Contribution for the Defence of the Republic, as opposed to the previous 15% tax rate. This particular law relates solely to individuals as corporate vehicles are not liable for defence tax on dividends. The raised tax rate is also applicable in situations of deemed distributions.

Taxand's Take


It is worth mentioning that interest payments to non residents are not subject to defence tax while Cypriot tax residents receiving such interest are liable to defence tax even if the interest source is located outside Cyprus.

Dividends paid to non residents or companies are not subject to defence taxation and the same applies when shareholders of a resident company are non resident.

The above mentioned amendments will come into force once the new laws are published in the Official Gazette of the Republic.

Your Taxand contact for further queries is:
Georgia Papa
T. +357 22 699 222
E. Georgia.papa@eurofast.eu

Taxand's Take Author