We would like to bring to your attention the deemed dividend distribution (DDD) rules of the Special Contribution for the Defence Law that apply to the 2020 tax year.
Profits subject to deemed dividend distribution
After taxes and other changes, corporations are deemed to have allocated 70 percent of their accounting profits to their resident shareholders as of the end of the second year after the year to which the profits pertain. Any actual dividend payments made from such profits, whether made as interim dividends during the applicable tax year or during the two years following the year's end, diminish the profits depending upon the deemed distribution rules.
The profits of Cypriot tax resident companies that are either indirectly or directly attributable to Cypriot tax residents and/or domiciled shareholders are subject to the DDD provisions (i.e., the portion of profits which are indirectly or directly attributable to non-Cypriot tax residents and/or non-domiciled shareholders is excluded from the DDD provisions).
Special defence contribution
If the Cypriot tax resident company does not disperse at least 70 percent of its accounting profits after tax (as adjusted for DDD purposes) within 2 years of the end of the tax year to which these profits are associate, a special defence contribution at the applicable rate of 17 percent is due for payment on these deemed dividends.
In this regard, the gains of the year 2020 are subjected to a deemed distribution on December 31, 2022, and a company must make the payment for the special defence contribution as representative of its shareholders by January 31, 2023.
General Health System contribution
It's vital to remember that the General Healthcare Scheme (GHS) must be contributed at the applicable rate of 2.65 percent before any real or deemed dividends are distributed to Cypriot tax resident shareholders (regardless of their domicile status).
By the 31st of January 2023, a company must pay the GHS contribution as the representation of its shareholders for the deemed dividend distribution of profits for the year 2020.
If you want help with the determination of the profits subject to the DDD, the creation and submission of the applicable tax form (TD603), which must be completed by January 31, 2023, or any additional help relating to the aforementioned, please contact the tax team at C. Savva & Associates.