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Special Contribut. fr Defence Law

Rates

All residents of the Republic are subject to defence contribution on the sources of income set out below:

Dividends (for the period 1/1/2012 to 31/12/2013)
Interest income
Interest received by an individual from Government Savings Certificates
Interest received by an individual from Government Bonds
Interest earned by an approved provident fund
Rental income less 25%
Profits earned by public corporate bodies

Non residents are not subject to the defence contribution.
  20%
30%
30%
30%
30%
3%
30%


Dividends

Exemptions:

  • Dividends paid by a company resident in the Republic to another company resident in the Republic. However, special defence contribution will be imposed on dividends paid by a company resident in the Republic, to another company, resident in the Republic, after four years from the end of the year in which the profits which were distributed as dividends were made.
  • Dividends received by a company resident in the Republic or a company not resident in the Republic which maintains a permanent establishment in the Republic from a company which is non-resident in the Republic. The exemption does not apply if the company paying the dividends is an investment company (>50% investment income) and the foreign tax is significantly lower.
  • Dividends paid out of dividend income which has suffered income tax at source of 20% and are paid within a period of six years from the date of receiving such dividend income
  • Dividends derived directly or indirectly from profits arising from operating a Cyprus flag ship in the course of shipping activities or from ship management services.

Deemed distribution

A company resident in the Republic is deemed to have made a distribution of 70% of its profits after tax in the form of dividends at the end of the two years from the end of the tax year in which the profits relate and must account for 20%  (for the period 1/1/2012 to 31/12/2013) defence contribution thereon.
 
In arriving at the amount of the deemed distribution, any actual dividend which is distributed during the two year period from the end of the tax year in which the profits relate is deducted.

In cases where an actual dividend is paid after the two year period, any deemed distribution reduces the actual dividend on which the defence contribution is withheld.

For the purpose of calculating the amount of the deemed distribution, “profits” mean the accounting profits arrived at using generally acceptable accounting principles, but after the deduction of any transfers to reserves as specified by any law. Any offset of group losses as well as any amounts, including any additional depreciation, which emanate or are the result of revaluation of movable and immovable property are ignored.

The deemed distribution provisions do not apply to profits which relate to non-resident shareholders.

In the case of a person not being resident in the Republic receiving dividends from a company which is resident in the Republic, emanating from profits which at any stage were subject to deemed distribution, the special contribution paid as a result of the deemed distribution which is attributable to such person is refundable.

Interest income

Interest that is received as a result of the carrying on of a business activity, including interest closely connected to the ordinary activities of the business, is not considered interest for special defence contribution purposes.

A person whose total annual income, including interest, does not exceed €12.000 who receives interest which has been subject to defence contribution at 30%, has the right to a refund of the amount of defence contribution suffered in excess of 3%.
 
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