On 26 of May 2022, the Cyprus Parliament approved an important amendment to the Special Contribution for Defense (“SCD”) Law, for what concerns taxation of interest income.
Based on the amendment, the reduced rate of three percent (3%), which was so far available on certain occasions, will be extended to both legal entities and individuals, in cases where the interest is received or credited from savings certificates and development bonds of the Republic of Cyprus or any other State, from corporate bonds listed on a recognized Stock Exchange, and from bonds that are listed on a recognized Stock Exchange and were issued by a Governmental Authority or Organization. The reduction will also apply to interest received or credited by a Pension fund, a Governmental Authority or Organization, a Provident fund or the Social Insurance Fund.
It is reminded that any interest income derived from the ordinary carrying on of a business is not treated as interest subject to SDC, but instead as business profit and is therefore subject to Income Tax. An example of such an interest is the one deriving from loans granted by a Cyprus holding company to its subsidiaries.
The reduced rate will enter into force on the date of publication of the amendment in the Law in the Official Gazette of the Republic of Cyprus.