Cyprus – Special Contribution for Defence (SDC)

Special Contribution for Defence

Cyprus – Special Contribution for Defence (SDC)

Special contribution for Defence is imposed on dividend income, passive interest income and rental income. SDC is imposed on Cyprus tax resident companies and individuals who are domiciled Cyprus tax residents. Rates charged can be seen below:

Type of income

Legal Entities


Dividend income from Cyprus tax resident companies

0% (1)


Dividend income from non-Cyprus tax resident companies

0% (2)


Interest income arising from ordinary activities of the company (subject to Income tax and Corporation tax)



Passive interest income

17% (3)

17% (3)

Gross rental income (reduced by 25%)



Interest received from Approved Provident Fund and social insurance fund



Cyprus Government Saving bonds and development stocks





  1. Dividends received to one Cyprus tax resident company from another is exempt from SDC, unless they are declared indirectly after the lapse of four years after the year in which the profits arose. If this is the case, then they may be subject to SDC at 17%;
  2. This exemption does not apply if the below conditions are met:
    • More than 50% of the paying company’s activities are from investment income and
    • Foreign tax is substantially lower than the Cyprus tax rate. Substantially lower is an effective tax rate of less than 25%;
  1. Effective from 1 January 2024, SDC on passive interest income is reduced from the rate of 30% to 17%.

In regards to individuals, as of 16 July 2015, SDC is payable only if they are considered to be both Cyprus tax resident and Cyprus domiciled.

According to the provisions of the Wills and Succession Law domicile can be obtained in two different ways:

  1. Domiciled by Origin – domicile given at birth, normally from the father’s side
  2. Domiciled by Choice – an individual acquired domicile by forming a permanent residence and has the intention to reside in Cyprus permanently

In accordance with the SDC law, a Cyprus domicile individual who has received its status by origin/birth is considered a non-domiciled if any of the below conditions are met:

  1. Individual has retained a domicile of choice outside of Cyprus, provided that they were not tax residents in Cyprus for any period of at least 20 continuous years prior to the tax year in assessment;
  2. An individual has not been a Cyprus Tax Resident for at least 20 continuous years prior to the release of the amended SDC law.

It must be noted that when assessing whether an individual for a specific year is a domicile Cyprus tax resident or not, we need to consider the number of years this individual has been a Cyprus tax resident. If an individual has been a Cyprus tax resident for at least 17 out of the last 20 years prior to the tax year under review, then irrespectively from the individual’s origin, this individual will be taxed as a Cyprus domiciled individual for SDC purposes. SDC will be payable from the 18th year of an individual’s reside in Cyprus.

Domiciled tax resident individuals are taxed on the normal SDC tax rates (see table above) while non-domiciled tax resident individuals are fully exempt from SDC.

Payment deadlines:

SDC due on Cyprus sourced interest and dividends is withheld at source and is payable at the end of the month following the month in which they were received.

SDC due on foreign sourced dividends, interest and rental income, is payable in 6-month intervals on 30 June and 31 December each year.

Foreign taxes paid can be credited against the SDC liability irrespective of whether a double tax agreement with the foreign country is in place. Double tax credit cannot exceed Cypriot tax due on foreign income.

Deemed distribution:

A Cyprus tax resident company is deemed to distribute 70% of its accounting profits in the form of dividends, within two years following the end of the tax year in which the accounting profits were generated in.

Accounting profits are net of corporation tax, SDC, capital gains tax and other foreign taxes. Any actual payment of dividends made during the two-year period are deducted from the amount of deemed dividends that needs to be distributed.

In cases where actual dividend is paid after the deemed dividend distribution date, any deemed distribution will reduce the actual dividend on which SDC is payable. SDC of 17% is paid on any deemed dividend distributions made, to the extent that the ultimate shareholders of the Cyprus tax company are Cyprus tax residents and domiciled individuals.

Disposals of assets to shareholders at less than market value:

In the event where a Cyprus tax resident company disposes an asset to its Cyprus tax resident and domiciled shareholder or his/her relatives up to second degree or his/her spouse, either without consideration or at a value that is lower than the market value of the asset that was disposed, then the difference between the market value and the amount of consideration at which the asset was actually disposed at, is deemed to have been distributed to the shareholder from the company.

In the case that the shareholder or his/her relative up to second degree or his/her spouse presents an asset in the form of a gift to the company, then the above provisions do not apply.

Reduction of Capital

In regards to reduction of a company’s capital, any amount that was paid or due to the company’s Cyprus tax resident and domiciled shareholder that is in excess of the initial paid-in equity, will be considered as dividend distributed and will be subject to SDC at 17%. The buy back or redemption of units or other ownership interests in an open-ended or closed-ended collective investment schemes is not considered a capital reductions and is not subject to SDC.

Company Dissolution:

The aggregated profits of the last five years of a Cyprus Tax Company prior to its dissolution, which have not been distributed already, will be subject to SDC at a rate of 17% on dissolution. The difference between the market value and the original acquisition price of any assets that are allocated to the company’s shareholders upon dissolution or liquidation, will be subject to deemed distribution provisions. If, during dissolution, the company does not have enough profits to repay its creditors, then no profits will be available to be distributed to its shareholders. This provision does not apply to the case of dissolution under a reorganisation.

For more details and clarifications in regards to Cyprus Special Defence Contribution please contact our offices at

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