Payment of extraordinary defense levy for the second half of the year 2023, on rents.

Payment of extraordinary defense levy for the second half of the year 2023, on rents.

Payment of an extraordinary defense levy for the second half of the year 2023, on rents

(if this has not been withheld at source by the tenant, through Tax Form T.F.601), foreign dividends and interest.

1. Legal entities are subject to extraordinary defense levy if they are tax residents of Cyprus. Before July 16, 2015, natural persons were subject to an extraordinary defense levy if they were tax residents of Cyprus. As of July 16, 2015, of course persons are subject to defense levy if they are both tax residents of Cyprus and if they are “domiciled”.

A natural person is “domiciled” in Cyprus for the purposes of the Emergency Defense Contribution, if he has the residence of origin in Cyprus, as specified in the Law on Wills and Succession (with some exceptions) or if it is tax resident in Cyprus for at least 17 of the 20 years immediately preceding the relevant tax year. Provisions for tax avoidance apply.

2. Dividends received by a company that is a tax resident of Cyprus from another company that is a tax resident of Cyprus, are excluded (except for dividends paid indirectly after 4 years from the end of the year in which the profits from which the said dividends are derived) were realized.

In the case where the actual dividend has been distributed to a company that is indirectly owned by a natural person/s tax resident of the Republic who have their tax residence (domicile) in the Republic and at the discretion of the Treasurer, the interposition of that company as a shareholder of the company that paid the dividend does not serve any commercial or economic purpose but has as its purpose the calculation of a reduced amount of extraordinary defense levy, the Commissioner has the power to consider that the dividend has been paid to the tax resident of the Republic who has his domicile in Republic which directly or indirectly controls the company that received the dividend, and to demand the extraordinary amount defense levy either by this person or by the company itself. Tax avoidance provisions apply.

3. From 1 January 2016, this subsection applies to dividends that are not deductible for the purposes of determining foreign tax from the company paying the dividend. Dividends Deductible for Foreigner Determination Purposes tax from the company paying the dividend are subject to corporation tax.

This exception does not apply if:

▪ more than 50% of the foreign company’s activities yield direct or indirect income from investments and

▪ the foreign tax is significantly lower than the tax burden in Cyprus. The tax authorities clarified through a circular that “significantly lower” means that the actual tax burden on distributed earnings is less than 6.25%.

If the exemption does not apply, the Cypriot company pays a 17% defense levy.

4. Such interest is subject to Income Tax.

5. Interest collected from Cypriot government development bonds and savings certificates from individuals, as well as and interest earned by a Provident Fund is taxed at 3%. If the total income of a natural person (including interest) does not exceed €12,000 in the tax year, the special contribution rate for defense is reduced to 3%.

In cases where the tenant is a Cypriot company, cooperative, the state or a local authority, the Emergency Defense Contribution on domestic rents is withheld at source and is payable at the end of the month following the month in which withheld. In all other cases the Emergency Defense Levy on such rents is payable by the landlord at the end of each semester, i.e. on June 30 and December 31 of each year.

Extraordinary Defense Contribution payable in domestic interest and dividends, to tax residents of Cyprus, is withheld in source and are payable at the end of the month following the month in which they were collected.

However, an Extraordinary Defense Levy on dividends, interest and foreign rent is payable at the end of each half-year, that is, on June 30 and December 31 of each year.

6. Rents are also subject to income tax. Foreign taxes paid can also be credited against the defense levy.

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