We would like to bring to your attention the obligations arising from the deemed dividend distribution (DDD) provisions of the Special Contribution for the Defence Law that will be in effect on December 31, 2022.
What profits are within the scope of the DDD provisions?
The DDD provisions apply to the profits of Cypriot tax resident companies that are ultimately owned by shareholders which are Cypriot tax resident and Cypriot domiciled individuals.
When do the DDD provisions apply?
The DDD provisions apply where a Cypriot tax resident company has not distributed at least 70% of its after tax profits within two years from the end of the tax year to which such profits relate.
Therefore, companies with accounting profits for tax year 2020 that fall within the DDD provisions, must declare an appropriate amount of dividend in order to meet the 70% threshold of distributed profits by December 31, 2022 and pay the relevant SDC by the end of the following month in which the dividend was declared, if applicable.
If this is not done, the relevant undistributed profits up to the 70% threshold will be considered as deemed distributed on December 31, 2022, and the relevant SDC and GHS (if applicable) must be paid by January 31, 2023.
GHS contributions on actual or deemed dividend distributions?
The distribution of either an actual or a deemed dividend to shareholders which are Cypriot tax resident individuals (irrespective of their domicile status) is subject to contributions to the General Healthcare Scheme (GHS) at the rate of 2,65%.
Payments of SDC and GHS
Prompt payments are made via JCC smart or online banking, while late payments can only be made via online banking.
The relevant tax codes per payment type are provided below:
|Payment type||Tax code|
|SDC on actual dividends paid||603|
|SDC on deemed dividends distribution||623|
|GHS contributions on actual dividends paid||703|
|GHS contributions on deemed dividends distribution||723|
Penalties for late payment of the SDC and GHS
Late payment of the SDC and GHS contributions due 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.
Tax declaration for actual dividend distribution
Form T.D.603 “Declaration of withheld Special Contribution for Defence (SDC) and General Healthcare Scheme (GHS) from Dividends” should be submitted by the end of the following month that the dividend was declared or by 31 January 2023 for deemed dividends, through TAXISnet. The form is due for submission only in case any SDC or GHS liability arises on the actual or deemed dividend payments. Late submission carries a fixed penalty of €100.
How can we help?
We are available to assist you with the necessary calculations, payment administration, and submission of the relevant declaration.