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Special Defence Contribution

Effective tax planning and guidance on tax effective solutions

Subject to Special Defence Contribution

Special defence contribution applies only for:

  • Cyprus tax resident companies.

  • Individuals who are both tax resident and domiciled in Cyprus.

Domiciled in Cyprus

An individual is domiciled in Cyprus for the purposes of special contribution for defence if he has a domicile of origin in Cyprus as per the Wills and Succession Law or if he has been a tax resident in Cyprus for at least 17 out of the 20 tax years immediately prior to the tax year of assessment.

Special defence contribution is imposed on the following sources of income at the rates indicated below:

Dividends - Exemptions

The following dividends are exempt from special defence contribution:

i)   Dividends received by a company resident in the Republic from another company resident in the Republic.

ii)  Dividends received directly or indirectly from dividends on which defence contribution has already been paid.

iii) 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 not resident in the Republic. However, this exemption does not apply if: 

      a) more than 50% of the activities of the non-resident dividend paying company lead to investment income AND

      b) the foreign tax burden on the income of the dividend paying company is substantially lower than the tax burden of the Cyprus tax resident company or the non-resident company which has a permanent establishment in the Republic.

Interest income - Exemptions

Interest earned as a result of the ordinary carrying on of the business (including interest closely connected to the ordinary carrying on of the business and interest earned by a collective investment scheme) is not considered interest for special contribution for defence purposes and is exempt from special contribution for defence. 

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

The above should be used only as a source of general information and it is not intended to provide, and should not be relied on for tax, legal or accounting advice. It is also subject to Disclaimer. Before engaging in any transaction you should seek for professional advice.


For further details on these issues, please do not hesitate to contact us.

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