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We would like to remind you of the Special Defence Contribution tax on the Deemed Dividend Distribution on 2016 accounting profits must be paid to the Cyprus tax authorities by 31 January 2019.

Tax provisions on deemed distribution of dividends

The tax provision applies to the profits of Cyprus tax resident companies that are attributable directly to Cyprus tax residents and domiciled shareholders. It also applies to tax resident corporate shareholders, the ultimate or immediate physical shareholders of which, are tax resident individuals domiciled in Cyprus. These provisions do not apply to the proportion of profits attributable directly or indirectly to non-Cypriot tax resident shareholders or to Cypriot tax resident shareholders that are not Cypriot-domiciled.

When do the deemed distribution of dividends provisions apply?

Any Cyprus tax resident company which has not distributed at least 70% of its profits within two years from the end of the year in which the profits are attributable, is subject to the provisions of deemed dividend distribution. In such a case, the undistributed part of such profits is subject to Special Defence Contribution (SDC) at the rate of 17%.

Payment of Special Defence Contribution Tax

Companies with accounting profits for tax year 2016 that fall within the Deemed Distribution of Dividends provisions, would have to declare an appropriate amount of dividend in order to meet the 70% threshold of distributed profits on or before 31st of December 2018 and where applicable, pay the relevant SDC only electronically via JCC smart (category 603: Contribution for Defence deducted from dividends).

Otherwise, on 31st of December 2018, 70% of the undistributed profits of 2016 will be treated as dividends payable to the Cyprus tax resident shareholders (individuals or corporations) (deemed dividends) and will be subject to Special Defence Contribution (SDC) at the rate of 17%. The SDC will need to be paid on or before the 31st of January 2019 only electronically via JCC smart (category 623: Special contribution for Defence on deemed dividends).

We are at your disposal to assist you with the relevant calculations and any further information or clarification you need.