Deemed Dividend Distribution for 2019 profits

Cyprus tax resident companies must declare at least 70% of their 2019 accounting profits by 31 December 2021 and pay the resulting special contribution for defence of 17% and National Health Contribution of 2,65% by 31 January 2022.

These provisions apply for special contribution for defence purposes in cases where a company with Cyprus tax resident and Cyprus domiciled shareholders has not distributed at least 70% of the accounting profits for a specific tax year. 

The deemed distribution provisions also apply for National Health Contribution purposes in case where a Cyprus tax resident company has Cyprus tax resident individual shareholders (regardless of their domicile). These provisions do not apply to the proportion of profits that are ultimately attributable to shareholders that are non-Cypriot tax resident individuals or Cypriot tax resident individuals that are not Cypriot-domiciled.

The deemed dividend distribution provisions on the accounting profits for the tax year 2019 will be triggered on 31 December 2021. The said provisions will come into force in case a Cyprus tax resident company does not distribute at least 70% of its 2019 accounting profits by 31 December 2021.

If a Cyprus tax resident company does not distribute such profits, then it will be deemed that it has distributed to its Cyprus tax resident shareholders (individuals or corporations). In that case, 70% of the company’s after-tax accounting profits will be deemed as distributed by 31 December 2021 and will be required to withhold a 17% special contribution for defence (for Cyprus tax resident and domiciled shareholders) and 2,65% National Health Contribution (for all tax resident shareholders) and pay them over to the Tax Department. The amount of any deemed dividend is reduced by any actual dividend distributed during the period from 1 January 2019 to 31 December 2021 out of the 2019 accounting profits.

Deemed dividend distribution provisions apply for special contribution for defence purposes to Cyprus tax resident and domiciled individuals. They also apply to tax resident corporate shareholders, the ultimate or immediate physical shareholders of which, are tax resident individuals domiciled in Cyprus.

Where a tax resident company is ultimately owned by a non-Cyprus tax resident individual, the deemed dividend distribution provisions do not apply.

For National Health Contribution purposes, the deemed distribution provisions apply in cases where a tax resident company is directly or ultimately owned by a Cyprus tax resident individual (regardless of their domicile).

Late payment of the special contribution for defence and NHC will be subject to interest at the current rate of 1,75% per annum and to a 5% penalty on the tax due. An additional penalty of 5% on the tax due may be imposed if the tax remains unpaid two months after the above due dates.