Special Contribution for Defence

Special contribution for defence is imposed on Cyprus tax resident companies and tax residents and domiciled individuals on the following sources of income:

Source of Income

Tax Rates

Dividend received by individuals


Dividends received by companies (note 1)


Interest arising from or closely connected to the ordinary course of business


Interest received by an individual from Government saving certificates or bonds


Other interest


Rental income (reduced by 25%)


Note 1:

Dividends received by a company resident in Cyprus from another Cyprus company are exempt from taxes, excluding dividends paid indirectly after the lapse of 4 years from the end of the year when the profits which were distributed as dividends were generated.

Dividends received directly or indirectly from dividends on which defence contribution has already been paid are exempt from special defence contribution.

Dividends received by a company resident on Cyprus or a foreign company maintaining a permanent establishment in Cyprus from abroad are exempt from tax unless:

a) more than 50% of the paying company’s activities result directly or indirectly in investment income (non-trading income)


b) the foreign tax burden of the dividend paying company is significantly lower than the tax burden in Cyprus (i.e. an effective tax rate of less than 6.25% / 50% of the Cyprus CIT).

Deemed distribution

A company resident in Cyprus is deemed to have distributed 70% of its profits after taxation in the form of dividends at the end of the second year following the tax year in which such profits were generated. The deemed dividend distribution applies only in cases where the ultimate direct/indirect shareholders of the company are Cyprus tax resident and domiciled individuals.

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