SPECIAL CONTRIBUTION – CYPRUS
Protect Your Income — Pay Only What’s Necessary
Comprehensive guidance on Cyprus’s Special Defence Contribution and Special Contribution for Employees, ensuring compliance with optimized tax outcomes.
At a Glance
| Category | Applicable To | Rate Range | Main Tax Type |
|---|---|---|---|
| Dividends (Resident & Dom.) | Resident Individuals (domiciled) | 17% | Special Defence Contribution |
| Interest Income | Resident Individuals (domiciled) | 30% | Special Defence Contribution |
| Rental Income | Resident Individuals (domiciled) | 3% on 75% of gross rent (effective 2.25%) | Special Defence Contribution |
| Public/Private Sector Employees | 2011–2016 (abolished) | 0–3.5% | Special Contribution for Employees |
Non-domiciled tax residents enjoy full exemption from SDC — 0% on dividends and interest for up to 17 years.
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Ensure you’re compliant and not overpaying on passive or investment income.
Overview
The Special Defence Contribution (SDC) is a separate Cyprus tax applicable to resident and domiciled individuals and Cyprus tax-resident companies on certain types of passive income. It is distinct from Income Tax and applies only to Cyprus domiciled taxpayers.
1. Applicable Income Types and Rates
| Income Type | Resident & Domiciled Individuals | Non-Domiciled Individuals | Cyprus Companies |
|---|---|---|---|
| Dividends | 17% | 0% | 17% (subject to conditions) |
| Interest Income (not trading) | 30% | 0% | 30% (reduced to 3% for intragroup) |
| Rental Income | 3% on 75% (effective 2.25%) | 0% | 3% on 75% |
2. Who Pays SDC
Resident Individuals (Domiciled):
- Pay SDC on worldwide dividend, interest, and rental income.
- Exempt from SDC if classified as non-domiciled (for 17 years).
Resident Companies:
- Pay SDC on Cyprus and foreign-source dividends and interest (unless exempt under participation exemption or group relief).
Non-Residents:
- Exempt from SDC, even if income arises in Cyprus.
Domicile Definition (per the Wills & Succession Law, Cap.195): A person is considered domiciled in Cyprus if they are born to a Cypriot father or have been resident in Cyprus for at least 17 of the last 20 years.
3. Participation Exemption (for Companies)
Dividends received by a Cyprus tax-resident company are exempt from SDC if:
- The paying company is not more than 50% passive-income based, and
- The foreign tax burden is not substantially lower (≥6.25% effective rate benchmark).
This exemption enhances Cyprus’s role as a holding and investment jurisdiction.
4. Special Contribution for Employees (Historic)
- Between 2011 and 2016, a temporary Special Contribution for Employees (SCE) applied to private/public sector remuneration.
- It was abolished in January 2017.
- Any current references relate only to the Special Defence Contribution (SDC), not employment income.
5. Payment and Withholding
| Source | Payment / Deduction Method | Reporting Form | Frequency |
|---|---|---|---|
| Dividends | Withheld by payer | Form IR601 | Upon payment |
| Interest | Withheld by payer | Form IR602 | Upon payment |
| Rental Income | Self-assessed | Form IR603 | Semi-annual |
Due Dates: 30 June and 31 December each year. Payment via TAXISnet or JCCSmart.
Penalties: 5% surcharge + 2.25% annual interest for late payment.
6. Key Exemptions (Summary Table)
| Exemption | Eligibility |
|---|---|
| Non-Domiciled Resident | Exempt from all SDC categories for 17 years |
| Pension & Employment Income | Not subject to SDC |
| Dividends from Subsidiary | Exempt under participation exemption |
| Foreign Permanent Establishment | Exempt if taxed abroad |
| Interest on Government Bonds | Exempt |
| Listed Company Dividends | Exempt from Cyprus SDC if distributed through nominee structures |
7. Why Choose Our Firm
- Expert review of SDC exposure and domicile classification
- Proactive dividend and holding structure planning
- Double-tax treaty and EU directive optimization
- TAXISnet filing and compliance management
- Continuous monitoring of circulars and amendments
We ensure you benefit from every available exemption while staying fully compliant under Cyprus law.