Marketing Department / Tuesday, February 11, 2025 / Categories: Cyprus Company Tax, Cyprus Taxation on Individuals, TAX ADVICE / CONSULTATION, Articles Examples of Dividend and Deemed Dividend Distributions from a Cyprus Company. Dividend distribution tax affects differently the shareholders depending on whether they are Cyprus nationals, physical or legal persons. Timing of the dividend distribution also plays a major role on the actual taxes paid. Scenario: 2018-2020 Dividend Tax Obligation Background o Year: 2018 o After-Tax Profits: €100,000 o Dividends Distributed: None o Profits Available for Dividend Distribution: €100,000 Dividend Tax Rule In Cyprus, if you do not distribute dividends within two years of earning profits, you are obliged to pay a Special Defence Contribution (SDC) on 70% of those profits. This rule applies to Cyprus tax residents who are also domiciled in Cyprus. On the other handside, there is no dividend tax on non Cyprus tax residents or Cyprus tax residents and non domiciled persons. Calculation 1. Profits Available for Dividend Distribution: €100,000 2. Percentage Subject to SDC: 70% o €100,000 * 70% = €70,000 3. Applicable Dividend Tax Rate: 17% o €70,000 * 17% = €11,900 Thus, by 2020, you would be required to pay €11,900 in dividend tax on the undistributed profits from 2018. Example Breakdown Let’s break it down step-by-step for clarity: o In 2018, your company made €100,000 in after-tax profits. o You chose not to distribute any dividends from these profits. o According to Cyprus tax law, by 2020, you are required to pay 17% tax on 70% of the retained profits. o This results in a tax obligation of €11,900. Implications This rule means that even if you do not withdraw your profits as dividends, you will still need to pay the dividend tax on a significant portion of those profits after two years. Essentially, you are taxed on the retained earnings as if they were distributed dividends. Who is Affected? This tax rule primarily affects: o Cyprus tax residents who are also domiciled in Cyprus. o Shareholders receiving dividends from Cyprus companies while being physically present in Cyprus. Who is Exempt? o Non-domiciled individuals in Cyprus. o Shareholders not physically present in Cyprus or not Cyprus tax residents. o These groups are not required to pay the Special Defence Contribution on dividends. Key Takeaways 1. Timely Dividend Distribution: To enjoy the 17% tax on 70% of retained profits, consider distributing dividends after two years of earning them (its like gaining a 30% off dividend tax!) 2. Strategic Tax Planning: Consult with tax experts to develop strategies that optimize your tax obligations while complying with Cyprus tax laws. 3. Professional Guidance: Our team at CYAUSE Audit Services is here to help you navigate these complex tax regulations. We provide detailed tax planning and advice to ensure you make informed decisions. Conclusion Understanding the nuances of dividend tax obligations in Cyprus is crucial for business owners and shareholders. At CYAUSE Audit Services Ltd, we are dedicated to providing you with the clarity and support needed to manage your tax responsibilities effectively. If you have any specific questions or require further assistance, please contact us. For further inquiries, contact us at kt@cyprusaccountants.com.cy or call us at + 357 99 336 321 For more detailed information and additional resources, visit our website cyprusaccountants.com.cy. Stay informed and compliant with our expert guidance. Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. Please consult with a professional tax advisor for advice on your specific situation. CYAUSE AUDIT SERVICES About Us CYAUSE Audit Services Ltd is a regulated audit and assurance firm performing statutory compliance services such as audit, payroll, tax and audit services. In our routine work, following the year end audit completion we always deal with dividend distribution matters which have different implications depending on whether the shareholders are Cyprus based, non Cyprus based, physical or legal persons. CYAUSE Audit Services is an Audit & Assurance firm with offices in Nicosia and Limassol. During 2015 we have been awarded by I.C.P.A.C and the A.C.C.A (local and international association of Chartered Certified Accountants) for the Quality of our Audit Services and our Office's Procedures. Being a Truly International Audit & Assurance firm, we have associates from all over the world and we are constantly looking for new associates to expand our network further. At present, CYAUSE Audit Services operates internationally as Accace Circle, a co-created business community of like-minded BPO providers and advisors who deliver outstanding services with elevated customer experience. Our network covers almost 40 jurisdictions with over 2,000 professionals, it supports more than 10,000 customers, mostly mid-size and international Fortune 500 companies from various sectors, and processes at least 170,000 payslips globally. CYAUSE Audit Services Ltd is also a member of BKR International, an american accounting and advisory association and the 3E Accounting Network, an international accounting network which originates from Hong Kong and has more than 80 members from all over the world. Contact Us If you would like us to assist you with your investment firm or fund please contact us at kt@cyprusaccountants.com.cy or call us at +357 22 336 321. Learn More about Cyprus Corporate Environment Information about CYAUSE Audit Services and the Cyprus Corporate & Tax System can be obtained from our Website or our YouTube channel which provides valuable information about the Corporate & Tax Environment of Cyprus. Print 88 Rate this article: No rating Tags: cyprus taxationCyprus companydividend taxcyprusShareholdersCyprus companiesDeemed Dividendsdividend incometax returnssharescyprus tax residentcyprus non domCyprus Dividend TaxCyprus Tax ResidentsCyprus Tax Lawtax on dividendsprofessional guidanceDividend Tax ObligationDividend Tax RuleSpecial Defence Contribution (SDC)Applicable Dividend Tax RateNon-domiciled individualsTimely Dividend DistributionStrategic Tax Planningcyprus dividendscyprus dividends taxescyprus dividend distributioncyprus shareholdernot a tax residentcyprus shareholderscyprus deemed dividendcyprus companies paying dividendscyprus shareholder dividend taxcyprus dividend income More links https://www.cyprusaccountants.com.cy/Knowledge-Hub/Articles/tax-rulings-by-the-cyprus-income-vat-office-do-you-need-one Please login or register to post comments.