Rates
All residents of the Republic are subject to defence contribution on the sources of income indicated below. Non residents are not subject to the defence contribution.
Dividends	15%
Interest income	10%
Interest received by an individual from Government Savings Certificates	3%
Interest received by an individual from Government Bonds	3%
Interest earned by an approved provident fund	3%
Rental income less 25%	3%
Profits earned by public corporate bodies	3%
Dividends
Exemptions:
·         dividends paid by a company resident in the Republic to another company resident in the Republic
·         dividends received by a company resident in the Republic or a company not resident in the Republic which maintains a permanent establishment in the Republic from a company which is non-resident in the Republic and of which at least 1% of the share capital is held (with certain criteria)
·         dividends paid out of dividend income which has suffered income tax at source of 20% and are paid within a period of six years from the date of receiving such dividend income
·         dividends derived directly or indirectly from profits arising from operating a Cyprus flag ship in the course of shipping activities or from ship management services.
Interest income   Interest that is received as a result of the carrying on of a business activity, including interest closely connected to the ordinary activities of the business, is not considered interest for special defence contribution purposes.   A person whose total annual income, including interest, does not exceed €11.960,21 who receives interest which has been subject to defence contribution at 10%, has the right to a refund of the amount of defence contribution suffered in excess of 3%.

Deemed distribution

A company resident in the Republic is deemed to have made a distribution of 70% of its 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 15% defence contribution thereon.

In arriving at the amount of the deemed distribution, any actual dividend which is distributed during the two year period from the end of the tax year in which the profits relate is deducted.

In cases where an actual dividend is paid after the two year period, any deemed distribution reduces the actual dividend on which the defence contribution is withheld.

For the purpose of calculating the amount of the deemed distribution, "profits" mean the accounting profits arrived at using generally acceptable accounting principles, but after the deduction of any transfers to reserves as specified by any law. Any offset of group losses as well as any amounts, including any additional depreciation, which emanate or are the result of revaluation of movable and immovable property are ignored.

The deemed distribution provisions do not apply to profits which relate to non-resident shareholders.   In the case of a person not being resident in the Republic receiving dividends from a company which is resident in the Republic, emanating from profits which at any stage were subject to deemed distribution, the special contribution paid as a result of the deemed distribution which is attributable to such person is refundable.

Company dissolution

The aggregate amount of profits in the five years prior to the company dissolution, which have not been distributed or be deemed to be distributed, will be considered as distributed on dissolution and will be subject to defence contribution at 15%.

These provisions do not apply in the case of dissolution under reorganisation, in accordance with certain pre-requisites set out in Regulations and where the shareholders are non-residents in the Republic.

Reduction of capital

In the case of a reduction of capital of a company, any amounts due or paid to the shareholders up to the amount of the undistributed taxable income of any tax year calculated before the deduction of losses from prior years, will be considered as distributed dividends subject to special defence contribution at 15% (after deducting any amounts which have been deemed as distributable profits).   These provisions do not apply where the shareholders are non-residents in the Republic.

Tax credit for foreign tax paid

Any tax suffered abroad on income which is subject to special defence contribution will be credited against any defence contribution payable on such income irrespective of the existence of a double taxation treaty.