31 December 2024 is
the cut off date for assessing whether there a Deemed Dividend Distribution
(DDD) will need to be considered for Special Contribution for Defence (SCD)
purposes.
It is reminded that the
Deemed Distribution (DD) provisions apply where a Cyprus tax resident company
has not distributed as a dividend at least 70% of its after-tax profits (as
adjusted for DD purposes) within two years from the end of the tax year to
which such profits relate.
The DD provisions apply
to the proportion of profits which are attributable to ultimate shareholders who
are Cyprus tax resident and Cyprus domiciled individuals. It does not apply to the
part of profits, which are attributable to ultimate shareholders who are
non-Cyprus tax resident individuals or who are Cyprus tax resident but are not domiciled
in Cyprus (known as “non-doms”). The distribution of either an actual or a
deemed dividend to shareholders which are Cyprus tax resident and domiciled
individuals is subject to SCD at the rate of 17%.
The DD provisions
also apply for General Healthcare Scheme (GHS) purposes for Cyprus tax resident
companies with ultimate shareholders who are tax residents of Cyprus
irrespective of whether they are domiciled in Cyprus or not. The distribution
of either an actual or a deemed dividend to shareholders which are Cyprus tax
resident individuals (irrespective of their domicile status) is subject to
contributions to GHS at the rate of 2,65%.
SCD and GHS
contributions on actual dividends would need to be paid by the end of the month
following the month in which the dividend was declared, whereas on deemed
dividends by 31 January of the year following the year in which they are
reported.
For example,
companies with accounting profits for the tax year 2022 that fall within the DD
provisions as analysed above, would have to declare dividends equal to at least
70% of their after tax (and adjusted if necessary) profits on or before 31
December 2024 and pay the relevant SDC and GHS by the end of month/s following
the month/s in which dividends were declared.
If this requirement
is not satisfied, then on 31 December 2024 the undistributed profits of those
companies up to the 70% threshold (i.e. 70% of profits minus any actual
dividends distributed during the period from 1 January 2022 to 31 December 2024
out of the 2022 accounting profits) would be considered (deemed) as distributed
and the relevant SCD and GHS would need to be paid by 31 January 2025.
