Special Defence Contribution (SDC) in Cyprus

The Special Defence Contribution (SDC) in Cyprus is a tax levied on specific types of income received by tax residents of the country. The contribution was introduced to fund the state’s defense needs and applies to both individuals and companies that are tax residents of Cyprus.

Key Aspects of the Special Defence Contribution

Taxable Income

Dividends

For individuals, the rate is 17% (for those with domicile status), while companies resident in Cyprus are not subject to SDC on dividends received from other Cypriot companies.

Interest

Various types of interest income are taxed at different rates. For example, interest income from corporate bonds for individuals will be taxed at 3% from 2024, down from the previous 30%.

Rental Income

The rate is 3% after a 25% deduction from the total income, making this type of income more attractive from a tax perspective.

Recent Changes in the Law

In January 2024, changes came into effect reducing the SDC rate on interest from 30% to 17% for most types of interest income. These changes aim to reduce the tax burden and attract more investors to the Cypriot economy.

Additional measures to combat tax abuse were introduced, including taxes on income paid to jurisdictions listed on the EU’s “blacklist.”

Exemptions and Exceptions

Exemptions exist for companies receiving dividends from other Cypriot companies, provided that such dividends have already been taxed under the SDC. Certain types of interest income, such as interest from government bonds, are also exempt from tax.

Impact on Taxpayers

It is crucial for taxpayers in Cyprus to understand the nuances of applying the Special Defence Contribution, as rates and conditions can vary significantly depending on the source of income. For example, the reduction of the interest rate on corporate bonds to 3% has made this type of investment more attractive.

For those with incomes subject to SDC, consulting with tax professionals is recommended to optimize tax obligations and take advantage of available benefits and exemptions.

These measures make Cyprus’s tax system more flexible and investment-friendly, positively impacting the country’s overall economy.

Disclaimer: This article is intended solely for general information purposes. It is not a substitute for professional advice. The information in this article should not be relied upon without obtaining independent advice that considers your specific circumstances. The authors and publishers are not responsible for any losses that may result from actions or inactions based on this article.