Reminder: Deemed dividend distribution 31 December 2023

Written by Demetris Nicolaides
5 December, 2023

This is a reminder of the approaching deadline for the Special Defence Contributions (SDC) and General Healthcare System (GHS) contributions on Deemed Dividend Distributions (DDD) for the 2021 tax year that need to be settled by 31 January 2024.

Scope of the legislation

The DDD provisions apply to Cyprus tax resident companies who have not distributed at least 70% of their 2021 accounting profits by 31 December 2023 and apply to the accounting profits that are ultimately attributable to  SDC of 17% on the 70% of their 2021 accounting profits after tax that are attributable to Cypriot tax resident and domiciled shareholders.

Any actual dividends distributed from 2021 accounting profits before 31 December 2023 will reduce the DDD on which SDC is payable. Similarly, the DDD will reduce any actual dividends from 2021 accounting profits paid after the 31 of December 2023 for SDC purposes.

If you have not distributed a dividend then the company is required to withhold and pay to the Tax Department by 31 January 2024 SDC of 17% on the 70% of their 2021 accounting profits after tax that are attributable to Cypriot tax resident and domiciled shareholders.

The DDD provisions also apply to the GHS contribution at 2.65% on the 70% of their 2021 accounting profits that are attributable to Cypriot tax residents regardless of their domicile status.

Dividends paid to shareholders which are either non-Cypriot tax residents or Cypriot tax resident companies (unless the 4-year rule applies) are exempt from SDC and GHS contributions.

Tax declaration for actual dividend distribution

Form T.D. 603 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.

Payment of SDC and GHS

The deadline for the payment of SDC and GHS on deemed dividend distribution is  31 January 2024. Prompt payments are made via the tax portal or online banking, while late payments can only be made via online banking.

Penalties for late payment of the SDC and GHS due

Late payment of the special contribution for defence and national health contributions (i.e. after 31/01/2024) will be subject to interest, currently being 2,25% 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 due dates.

We are at your disposal to assist you with the relevant process.

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