Defence Fund Contribution

Special contribution for the defence is imposed in accordance with the Special Contribution for the Defence of the Republic Law (Law No. 117 (I) of 2002, as amended) on income from sources in Cyprus, as stipulated below, which is derived by individuals and companies resident in Cyprus. An individual is resident in Cyprus, if he / she resides therein for a period or more which is aggregate exceed 183 days. A company is resident in Cyprus, if its management and control are excersised in Cyprus.
The income upon which it is imposed, is restricted to dividends, interest, rents and the taxable income of public corporate bodies. The Law stipulates for various exemptions, provided certain conditions are satisfied.
RatesIndividuals %Legal Entities %
Dividend income from Cyprus resident Companies17Nil
Dividend income from non-Cyprus resident Companies17Nil
Interest income arising from the ordinary activities or closely related to the ordinary activities of the business (active income) and interest earned by an open or close collective investment schemeNilNil
Other interest (Passive Inomce) and notional interest3015
Interest from saving certificates, development bonds and deposits with the Housing Finance Corporation315
Interest accruing to a Provident Fund33
75 % of the Gross Rental Income33

In the case that the dividends are received from a company, the shareholders of which hold directly at least 1% of the share capital, then the dividends are exempt from the payment of special contribution. This exception does not apply if:

  • The company paying the dividend engages more than 50% in activities that lead to investment income, and foreign tax burden on the income of the company paying the dividend is substantially lower than the tax burden of the company that receive the dividend
An individual whose annual income, including interest, does not exceed the amount of €12,000, has the right to a refund of the tax withheld on interest in excess of the amount corresponding to 3%
Allowance for foreign tax
In the case that foreign tax was paid on income subject to special contribution, this can be given as an allowance against the special contribution payable on the income, irrespective of the existence of a double taxation relief with the foreign country.
Deemed distribution
A company resident in Cyprus has to pay 15% special contribution to the defence fund based on a deemed distribution of 70% of the accounting profits after taxation and before set – off losses brought forward from previous years, after taking into consideration any dividents paid withing the two years and which relate to residents of Cyprus.
International business companies, which elected to be taxed in accordance with the transitional provisions for the years 2003 – 2005, are exempt from payment of special contribution to the defence fund for this period.

Defence tax rates

PeriodDividends %Interest %
01/01/1991 - 31/07/199833
01/01/1998 - 30/03/200044
01/04/2000 - 30/06/2002-3
01/04/2000 - 31/12/20023-
01/07/2002 - 30/08/2011-10
01/01/2003 - 30/08/201115-
31/08/2011 - 28/04/20131715
29/04/2013 -2030
01/01/2014 -17-