Services

Special contribution to defence (SCD) is imposed on Cyprus tax resident companies. As opposed to corporation tax, the SCD rate is not set at a flat rate but ranges from 3-30%, depending on the activity. SDC is imposed on the following sources of income:

Dividend income

Dividend income from CY Company or from a company not resident in Cyprus which maintains a permanent establishment in Cyprus or from a company which is not resident in the Republic is not subject to the SCD.  Also if dividends received directly or indirectly from dividends on which SDC has already been paid are not subject to SDC.

This exemption does not apply if dividend is received from a foreign entity and the following apply:

More than 50% of the paying company’s activities results directly or indirectly in investment income; and

The foreign tax is significantly lower than the tax burden in Cyprus. The Cyprus tax authorities have issued a circular that clarifies that “significantly lower” is interpreted to mean a tax burden rate below 5%.

When the above exemption applies, the dividend income is subject to SCD at a rate of 17%.

Interest income

Passive interest (see corporation tax section above) is subject to SCD at the rate of 30% and is always exempted from the corporation tax obligation. The two main forms of passive interest are:

• Interest on loans provided by the company to its directors and shareholders; and
• interest earned by bank deposit accounts.

Rental income

All the income arising from rental of immovable property, whether in Cyprus or abroad is subject to SCD at a rate of 3% on 75% of the gross rent.

General

Trading income, royalty income and profits from the disposal of securities are not subject to SCD.