Introduction

The Cyprus Tax Authorities have introduced a new alternative method for the imposition of the Special Contribution for Defence (SDC) under Article 3D of the SDC Law, as part of the 2026 Tax Reform. This regime allows qualifying individuals to settle their SDC liability through a fixed lump-sum payment covering five consecutive tax years.

Key Feature

Eligible individuals may opt to pay a lump sum of €250,000 to secure exemption from SDC on dividend and interest income for a period of five years.

Eligibility

The regime applies only to individuals without Cyprus domicile of origin who are deemed to acquire Cyprus domicile under the 17-out-of-20-year rule and who meet all filing, approval, and payment requirements.

Benefits

During the five-year period, individuals benefit from full exemption from SDC on dividends, interest, and deemed distributions, effectively maintaining non-dom treatment.

Important Conditions

The election is irrevocable. The €250,000 must be paid in full within the prescribed deadline and is non-refundable under any circumstances.

Timing

Applications must generally be submitted by 30 June of the first year of the five-year period. Transitional provisions allow certain individuals who became domiciled in 2024 or 2025 to apply by 30 June 2026.

Conclusion

The new regime provides tax certainty and planning opportunities for individuals nearing Cyprus domicile status, allowing continued exemption from SDC through a fixed cost structure.