Special contribution for defence is imposed on certain types of income.
Non residents are exempt from special contribution for defence.
Exemptions:
Dividends received from non resident companies are exempt from this tax if the company paying the dividend engages:
- less than 50% in activities which lead to investment income and
- the foreign tax burden is substantially lower than the tax burden of the company in Cyprus.
Dividends received from resident or non resident companies are subject to special defence contribution at 20% for the years 2012 and 2013 (15% up to 30 August 2011 and 17% to 31 December 2011) but only on resident persons. Non resident persons are not liable to special defence contribution.
Deemed dividend distribution
If a Cyprus tax resident company does not distribute by way of a dividend at least 70% of its accounting profits within two years from the end of the tax year then the company is deemed to have distributed such profits and is liable to pay 20% for the years 2012 and 2013 (15% up to 30 August 2011 and 17% to 31 December 2011) special contribution for defence on the deemed dividend distribution applicable to its shareholders who are Cyprus tax residents.
A non Cyprus tax resident receiving dividends from profits subject to a deemed distribution, is eligible to a tax refund.
Interest Income
Interest income which is not closely connected with its business, earned by a Cyprus tax resident company, is subject to 15% special contribution for defence (10% up to 30 August 2011).
Tax credit for foreign tax paid
Any tax suffered abroad on income which is subject to defence contribution will be credited against any defence contribution payable on such income irrespective of the existence of a double taxation treaty.