Under Cyprus tax legislation, companies that are tax residents in Cyprus must ensure compliance with the deemed dividend distribution rules for the tax year 2023. The key requirements are as follows:

• Distribution Obligation: By 31 December 2025, a Cyprus tax resident company must distribute at least 70% of its accounting profits for 2023.

• Tax Withholding: If the required distribution is not made, the company will be deemed to have distributed these profits to its Cyprus tax resident shareholders. Consequently:
• A Special Contribution for Defence (SCD) of 17% must be withheld for shareholders who are both Cyprus tax resident and domiciled.
• A National Health Contribution (NHC) of 2.65% must be withheld for all Cyprus tax resident shareholders.
• Payment Deadline: These contributions must be paid to the Tax Department by 31 January 2026.

Legal Basis

The above obligations arise from:

• The Special Contribution for Defence Law, and
• The National Health Contribution Law, which govern deemed dividend distribution on accounting profits.

Scope of Application

The deemed distribution provisions apply when a Cyprus tax resident company has not distributed at least 70% of its accounting profits for a given tax year.

For SCD purposes, the rules apply to:

• Cyprus tax resident and domiciled individuals, and
• Corporate shareholders whose ultimate or immediate individual shareholders are Cyprus tax resident and domiciled.

For NHC purposes, the rules apply where the company is directly or ultimately owned by a Cyprus tax resident individual (domicile status does not matter).

If the ultimate owner is a non-Cyprus tax resident individual, these provisions do not apply.

Adjustments

Any actual dividends paid from 1 January 2023 to 31 December 2025 out of the 2023 profits will reduce the amount subject to deemed distribution.