The Deemed Distribution (DD) provisions apply where a Cyprus tax resident company has not distributed as a dividend at least 70% of its after-tax profits (as adjusted for DD purposes) within two years from the end of the tax year to which such profits relate.
The DD provisions for Special Contribution for Defense (SCD) purposes apply to the proportion of profits which are attributable to ultimate shareholders who are Cyprus tax resident and Cyprus domiciled individuals. It does not apply to the part of profits, which are attributable to ultimate shareholders who are non-Cyprus tax resident individuals or who are Cyprus tax resident but are not domiciled in Cyprus (known as “non-doms”). The distribution of either an actual or a deemed dividend to shareholders which are Cyprus tax resident and domiciled individuals is subject to SCD at the rate of 17%.
The DD provisions also apply for General Healthcare Scheme (GHS) purposes for Cyprus tax resident companies with ultimate shareholders who are tax residents of Cyprus irrespective of whether they are domiciled in Cyprus or not. The distribution of either an actual or a deemed dividend to shareholders which are Cyprus tax resident individuals (irrespective of their domicile status) is subject to contributions to GHS at the rate of 2,65%.
SCD and GHS contributions on actual dividends would need to be paid by the end of the month following the month in which the dividend was declared and on deemed dividends by 31 January of the year following the year in which they are reported.
For example, companies with accounting profits for the tax year 2019 that fall within the DD provisions as analysed above, would have to declare dividends equal to at least 70% of their after tax (and adjusted if necessary) profits on or before 31 December 2021 and pay the relevant SDC and GHS by the end of month/s following the month/s in which dividends were declared.
If this requirement is not satisfied, then on 31 December 2021 the undistributed profits of those companies up to the 70% threshold (i.e. 70% of profits minus any actual dividends distributed during the period from 1 January 2019 to 31 December 2021 out of the 2019 accounting profits) would be considered (deemed) as distributed and the relevant SCD and GHS would need to be paid by 31 January 2022.
Late payment of SCD and GHS will be subject to a 5% penalty on the amount due and to interest at the public interest rate applicable over the period the amount is outstanding. An additional penalty of 5% on the amount due may be imposed if the tax remains unpaid two months after the above due dates.
