We would like to remind you about the payment of Special Defence Contribution tax and General Healthcare System contribution on the Deemed Dividend Distribution provisions that apply on 31 December 2021.
Profits subject to DDD provisions
The DDD provisions apply to the profits of Cyprus tax resident companies that are attributable to Cypriot tax
residents and domiciled shareholders only. These provisions do not apply to profits attributable directly or
non-directly to non-Cypriot tax residents or to Cypriot tax residents not considered to be domiciled in Cyprus.
Domiciled in Cyprus
An individual is considered to be “domiciled in Cyprus” for Special Contribution for defence, if such an individual has a domicile of origin as this is defined in Wills and Succession Law. However, the following individuals are not considered to be domiciled in Cyprus:
An individual who has obtained and maintained a domicile of choice outside Cyprus in accordance with the Law, provided that such an individual has not been a tax resident of Cyprus for a period of 20 consecutive years preceding the tax year or
An individual who has not been a tax resident of Cyprus for a period of 20 consecutive years prior to 16 July 2015.
Notwithstanding the above, an individual who has been a tax resident of Cyprus for at least 17 years out of the 20 years prior to the tax year, will be considered to be “domiciled in Cyprus.
Application of DDD provisions
The DDD provisions apply where a Cypriot tax resident company has not distributed to its shareholders, at least 70% of its accounting profits after tax (as adjusted for DDD purposes) within two years from the end of the tax year to which such profits relate. Any actual dividends paid during the years 2019, 2020 and 2021 in respect of the 2019 profits will be deducted before the calculation of DDD. In such a case, the undistributed part of such profits is subject to Special Defence Contribution (SDC) at 17% and General Health System (GHS) at 2.65%.
It is noted that the distribution of either an actual dividend or a deemed dividend, to Cyprus tax resident shareholders is also subject to General Healthcare System.
As such, companies with accounting profits incurred in the tax year 2019 that are subject to DDD provisions, would have to declare an appropriate amount of actual dividend in order to meet the 70% threshold of distributed profits on or before 31 December 2021 and where applicable, pay the relevant SDC and GHS via JCC smart or Tax portal within one month from the date of distribuion (SDC-category 603: Withholding from dividends paid / GHS-category 703: GHS withheld from dividends paid). knowing you.
Otherwise, on 31 December 2021, the relevant undistributed accounting profits (up to the 70% threshold) would be deemed to have been distributed and the relevant SDC and GHS would need to be paid by 31 January 2022 via JCC smart or Tax portal (SDC-category 623: Defence on deemed dividends / GHS-category 723: GHS on deemed dividends distribution).
Payment of the SDC and GHS liabilities after the due dates are subject to
5% penalty on the tax due
interest at the current rate of 1.75% per annum
We are at your disposal to assist you with the relevant calculations as well as with the preparation and submission of the relevant tax forms.
If we do not hear from you by 21/01/2022 for assistance in calculating the amount of Defence and GHS, we will assume that your company will not proceed with any payment to the tax authorities and any fines will be imposed on the company.
For any further clarifications you may require, please do not hesitate to contact: