The Special Contribution for Defence (known also as the Defence Tax) was introduced in 1984 and it concerns only specific kinds of income, among which are the following:

Dividends

17% applies on the amount of the dividend income received by any resident person.

Exemptions

• Dividends paid by a resident company to another resident company are exempt from tax except from dividends paid indirectly after 4 years from the end of the year in which the profits were distributed as dividends.
• Dividends received by a resident company or a non-resident company which maintains a permanent establishment in the Republic from a non resident company are exempt from defence contribution.

The exemption from the defence tax shall not apply, if the foreign company paying the dividend engages more than 50% in activities, which give rise to investment income and the foreign tax burden on the income of the company paying the dividend is substantially lower than the Cyprus tax burden, which is generally considered as a tax burden lower than 6,25%.

Interest

• 30% shall apply on interest received.
• 3% shall apply on interest from Government Savings Certificates, Government Bonds and deposits with the Housing Finance Corporation, as well as interest earned by approved provident funds.

Please note that interest received in connection to a business activity is not considered interest for the purposes of the defence tax.

Rental income

• 3% shall apply on rental income after a deduction of 25% on the gross rental income

This information is for general purposes only, for legal advice, please contact us.