Special Contribution to the Defence Fund

Residents of Cyprus are subject to defence contribution on the sources of income outlined below.

Dividends 17
Interest received 30
Interest received by an individual from Government Savings 3
Interest received by an individual from Government Bonds 3
Interest earned by an approved provident fund 0
Rental Income reduced by 25% 3



  • Dividends paid by a company resident in Cyprus to another company resident in Cyprus are exempted from Special Contribution for Defence
  • Dividends received by a company resident in Cyprus or a company not resident in Cyprus but which maintains a permanent establishment in Cyprus, from a company which is not resident in Cyprus and of which at least 1% of the share capital is held, then the dividends are exempted from Special Contribution for Defence.

Interest Received

Interest received as a result of the carrying on of a business activity, is not considered interest for special defence contribution purposes.

Deemed Distribution

A company resident in Cyprus is deemed to have made a distribution of 70% of its accounting profits after tax in the form of dividends at the end of the two years from the end of the tax year in which the profits relate and must account for 17% defence contribution.
Dividends deemed to have been distributed are reduced by any dividends that have actually been distributed during the two year period.
For the purpose of arriving at the profit subject to deemed distribution, any capital expenditure incurred in the acquisition of plant and machinery (excluding private saloon cars), and buildings during the year 2012 to 2014 is deducted from accounting profits after tax.
The deemed distribution provisions do not apply to profits which relate to shareholders not resident in Cyprus.


An individual whose annual income, including interest, does not exceed €12.000, has the right to a refund of the tax withheld on interest in excess of the amount corresponding to 3%.

Allowance for Foreign Tax

In case that foreign tax was paid on income subject to special contribution, this can be given as a credit against the special contribution payable on the income, irrespective of the existence of a double tax treaty with the foreign country.