Cyprus Tax News: Special Defence Contribution law amended to expand the application of the reduced rate of 3%

On 26 May 2022, the Cyprus Parliament passed into law amendments in the Special Defence Contribution (“SDC”) law, aiming to broaden the application of the reduced SDC rate of 3%. The amending SDC law was published in the Gazette on 8 June 2022 and is effective as from that date.

According to the old provisions of the law Article 3(2c), the reduced rate of 3% applied to interest income received by Cyprus tax resident domiciled individuals from savings certificates and development bonds of the Republic of Cyprus, corporate bonds as well as interest received or credited by a Provident Fund and or the Social Insurance Fund.

With the amending law, the 3% will also apply to both Cyprus tax resident domiciled individuals and Cyprus tax resident legal entities, on interest received from savings certificates and development bonds of the Republic of Cyprus or any other State, corporate bonds listed on a recognised Stock Exchange, as well as to interest that is received or credited by a Pension fund, a Local Authority, a Public entity or a Semi-Government Organisation, a Provident Fund and or the Social Insurance Fund.

The amending law clarifies that interest income derived from the ordinary carrying on of a business or closely connected with the ordinary carrying on of a business is not considered as interest and therefore it does not fall within the provisions of the SDC law.