- Non-Cyprus tax resident companies (have the option to get registered) and
- International business companies that opt to be taxed at the rate of 4,25% for the years 2003, 2004 and 2005
Special contribution for defence rates
- Individuals whose total income including interest does not exceed €12.000 are entitled to a refund for defence contribution deducted that exceeds the rate deducted of 3% .
- In the case of a dividend received from a non Cyprus tax resident company the exemption does not apply if :
- the company receiving the dividend owns less than 1 % of the share capital of the company paying the dividend, and
- the paying company engages directly or indirectly more than 50% in activities which result in investment income, and the foreign tax burden is significantly lower than the Cyprus tax burden.
- When the exemption does not apply, the dividend income is subject to special contribution for defence at 17%. Foreign tax paid can be credited against the special contribution for defence liability.
- This applies to dividends declared after 31 December 2002 and paid out of the dividend income of a company which has suffered 20% withholding tax, provided such dividend is declared within six years from the date of receipt by the company.
Deemed dividend distribution
If a Cyprus tax resident company does not distribute by way of dividend at least 70% of its accounting profits realized since 1st of January 2003, within two years from the end of the year of assessment, the company is deemed to have distributed such profits.
The deemed dividend distribution is currently set at the rate of 17% and is only applicable to the defence on the deemed dividends attributable to its shareholders who are Cyprus tax residents
The deemed distribution is reduced by the amount of any actual dividend declared and paid during the two year period from the profits of the relevant year
Actual dividends paid after the deemed distribution are subject to special contribution for defense only on the additional dividends paid
A non-Cyprus tax resident receiving a dividend emanating from profits which at any stage were subject to deemed distribution, is eligible to a refund of the special defense contribution paid because of the deemed distribution.
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