Tax Treatment of Dividends in Cyprus

TAX TREATMENT OF DIVIDENDS IN CYPRUS

Income Tax Law (L.118(I)/2002, as amended)


Dividend income accrued or arising to any person (company or individual) which is resident in Cyprus for income tax purposes, whether the said income derives from sources in Cyprus or outside Cyprus, is exempt from income tax, in accordance with section 8(20) of the Income Tax Law.

A company is considered to be resident in Cyprus for tax purposes, if its management and control are exercised in Cyprus, whereas an individual is so resident if he/she resided therein for a period or more which in aggregate exceed 183 days in the same tax year.

Special Contribution for the Defence of the Republic Law (L.117(I)/2002, as amended)

Subject to certain exceptions/conditions, dividend income is subject to special contribution for the defence only if it is received or is deemed to be received by any person (company or individual) which is resident in Cyprus for income tax purposes.

Thus it follows that no withholding tax applies to payments of dividends to non-residents, whether the recipient is a body corporate or an individual.

More specifically Section 3(2) of the Law provides, amongst other things, that:

1.    Dividends paid by a company resident in Cyprus for tax purposes and received or deemed to be received by any individual are liable to special contribution for the decence at the rate of 15%.  Special contribution for the defence is deducted at source.

Dividends received or deemed to be received by any individual from a company not resident in Cyprus are liable to special contribution for the defence at the rate of 15%.  Such dividends are self assessed.

2.    Dividends paid by a company resident in Cyprus for tax purposes to another Cyprus company are exempt from special contribution for the defence.

Dividends received or deemed to be received by a Cyprus company or by a permanent establishment in Cyprus belonging to a company not resident in Cyprus for tax purposes, payable by a company not resident in Cyprus, are exempt from special contribution for the defence, unless:

( i )     The paying company engages, directly or indirectly, more than 50% in activities which result in investment income, and

( ii )     The tax suffered by the paying company is significantly lower than the tax suffered by the company of the permanent establishment in Cyprus.

3.    Dividends emanating directly of indirectly from profits derived from the operation of a Cyprus ship or from the rendering of ship management services, as stipulated by section 4 of the Merchant Shipping (Fees and Taxing Provisions) Laws are exempt from special contribution for the defence.

It should be noted that where dividends are received from abroad any overseas tax withheld is given as a tax credit against the tax resulting in Cyprus.  Further a credit for underlying corporate taxes on dividends is provided under some tax treaties.