Deemed dividend distribution (DDD) provisions of Special Contribution for the Defence Law 

We would like to remind you of the obligations that arise from the deemed dividend distribution (DDD) provisions of the Special Contribution for the Defence Law that apply on 31 December 2022.

What profits are within the scope of the DDD provisions?

The DDD provisions apply to the profits of Cypriot tax resident companies that are ultimately attributable to shareholders which are Cypriot tax resident and Cypriot domiciled individuals.

These provisions do not apply to the proportion of profits that are ultimately attributable to shareholders which are non-Cypriot tax resident individuals or Cypriot tax resident individuals that are not Cypriot-domiciled (see further below though, on the obligation to withhold GHS contributions).

When do the DDD provisions apply?

The DDD provisions apply where a Cypriot tax resident company has not distributed at least 70% of its after tax profits (as adjusted for DDD purposes) within two years from the end of the tax year to which such profits relate.

In such a case, the undistributed part of such adjusted profits is subject to Special Defence Contribution (SDC) at 17%.

Therefore, companies with accounting profits for tax year 2020 that fall within the DDD provisions, would have to declare an appropriate amount of dividend, in order to meet the 70% threshold of distributed profits on or before 31 December 2022 and where applicable, pay the relevant SDC by the end of the following month that the dividend was declared.

Otherwise, on 31 December 2022, the relevant undistributed profits (up to the 70% threshold) would be considered as deemed distributed and the relevant SDC and GHS (where applicable) would need to be paid by 31 January 2023.

What about GHS contributions on actual or deemed dividend distributions?

The distribution of either an actual or a deemed dividend to shareholders which are Cypriot tax resident individuals (irrespective of their domicile status) is subject to contributions to the General Healthcare Scheme (GHS) at the rate of 2,65%. For more details on GHS contributions, please refer to the guidance issued by the Cyprus Tax Authorities.

GHS contributions on actual dividends would need to be paid by the end of the following month that the dividend was declared and on deemed dividends by 31 January 2023.

Dividends paid to shareholders which are either non-Cypriot tax residents or Cypriot tax resident companies (unless the 4-year rule applies) are exempt from SDC and from GHS contributions.

Payments of SDC and GHS

Prompt payments are made via JCC smart or online banking, while late payments can only be made via online banking.

The relevant tax codes per payment type are provided below:

Payment type	Tax code
SDC on actual dividends paid	603
SDC on deemed dividends distribution	623
GHS contributions on actual dividends paid	703
GHS contributions on deemed dividends distribution	723

What are the penalties for late payment of the SDC and GHS due?

Late payment of the SDC and GHS contributions due will be subject to interest at the current rate of 1,75% per annum and to a 5% penalty on the tax due. An additional penalty of 5% on the tax due may be imposed if the tax remains unpaid two months after the above due dates.

Tax declaration for actual dividend distribution

Form T.D.603 “Declaration of withheld Special Contribution for Defence (SDC) and General Healthcare Scheme (GHS) from Dividends” should be submitted by the end of the following month that the dividend was declared or by 31 January 2023 for deemed dividends, through TAXISnet. The form is due for submission only in case any SDC or GHS liability arises on the actual or deemed dividend payments. Late submission carries a fixed penalty of €100.