SPECIAL CONTRIBUTION FOR THE DEFENCE LAW.

1. Every resident person who receives dividend from a company is subject to Special Contribution at the rate of 15%. The following exceptions apply:
   
   a) Dividend payable by one company to another.
   
   b) Dividend received from an overseas company by a resident company or a company that has a permanent establishment in Cyprus, holding directly at least 1% of the company’s share capital and voting rights. This exception does not apply if the Overseas company activities are more that 50% of investing nature and the governing tax jurisdiction is substantially lower that that of Cyprus.



2. DEFENCE TAX ON DEEMED DISTRIBUTION MECHANISM.
   
   • The 70% of the distributable accounting profits after tax, accruing in the year of assessment will be deemed distributed to the shareholders at the end of a period of two years following the year of occurrence. Subsequently the shareholders concerned will be subject to 15% Tax to Special Contribution for the Defence, on such gross dividend accordingly.
   
   
   
   • The amount of the deemed dividend will be reduced by the amount of any actual dividend paid during the relevant period of the two years from the end of the year of assessment to which the profits relate.
   
   
   
   • In the case of liquidation of a company the total profits of the last 5 years prior to liquidation, which were not distributed will be deemed to be distributable at the time of liquidation and therefore subject to Special Contribution at the normal rate of 15%.
   
   
   
   • When a company reduces its capital with subsequent payment to the shareholders of any amounts up-to the level of undistributed taxable income of any year, which arises before setting off any losses brought forward and after accounting for any deemed distributable dividend, such amount will be regarded again as deemed distribution and subject to Special Contribution at the normal rate of 15%.
   
   
   
   • Every company that falls within the scope of deemed distribution scheme will need to submit to the Inland Revenue the necessary Return of deemed distribution provision and make a payment accordingly.
   
   
   
   • The provisions of deemed distribution of dividend does not apply for non-residents, and therefore any proportion of these profits is exempted.

DEFENCE FUND AND OTHER INCOME.

1. Every individual or Company receiving interest from any source within the Republic, with the exception of:
   
   a) Interest from saving bonds
   b) Development bond interest
   c) Interest from Housing Finance Organisation.
   
   Are liable to Special Contribution at the rate of 10%. Interest includes also deemed interest of 9% on non-interest bearing loans provided to the directors/shareholders of a company controlled by less than 5 persons.
   However in the case of an individual whose taxable income does not exceed CYP 7.000 per annum the amount in the excess of 3% withheld will be refunded.
   
   
2. Every individual who receives interest from saving bonds, development bonds and from deposits with the Housing Finance Organisation as well as interest receivable by a provident fund will pay Special Contribution at the rate of 3%.
   
   
3. Every individual or company who receives rents will be liable to 3% Special Contribution over the gross rents less 25% allowance.
   
   
4. Every Semi-Governmental body will be subject to 3% Special Contribution over its Chargeable income before any dividend, interest, rental income and tax losses set off under the provisions of Section 13 of the Income Tax Laws.
   
5. Credit relief is available in respect of foreign tax on the income subject to Special Contribution.
   
6. The following incomes are outside the scope of Special contribution:
   
   a) Emoluments of the employees.
   b) Employers’ contribution on the salaries of their employees (replaced by Social Cohesion Fund Law of 2002)
   c) Income of self-employed persons.
   d) Emoluments of persons holding or exercising an office in Cyprus.
   e) Pensions
   f) Company’s income, or body corporate or unincorporated from carrying business in Cyprus.
   g) Dividend payable by companies in Cyprus to other companies in Cyprus or to residents outside Cyprus.
   
   Exemptions
   • Gains from disposal of securities/stocks, listed in any recognised Stock exchange.
   (The provisions exempting tax aliens, Cypriots established abroad and International Business Entities, on gains accruing from disposal of property outside Cyprus and on gains accruing from disposal of shares listed in The Cyprus Stock exchange has been abolished)
   
   • Profits from disposal of immovable property held outside the Republic and shares in Companies, the property whereof consist of immovable property held outside the Republic, will be exempted from Capital Gains Tax.