Tax Alert concerning Deemed Dividend Distributions for the profits of tax year 2019
Cyprus tax resident companies are deemed to have distributed at least 70% of their 2019 DDD-adjusted profits, by 31 December 2021 and settle relevant SDC and/or GHS (if any) by 31 January 2022.
We would like to bring to your attention the Deemed Dividend Distribution (“DDD”) provisions of the Cyprus tax legislation and more specifically of the Special Defence Contribution (“SDC”) law. In addition, associated General Health System Contribution (“GHS”) implications are also discussed below.
Entities affected by DDD provisions
The said DDD provisions should capture Cyprus tax resident companies that are (wholly or partly) ultimately held by shareholders which are Cyprus tax residents and domicile individuals.
The companies that come under the scope of the DDD provisions, which do not distribute (at least) 70% of their 2019 accounting profits (adjusted as per the relevant DDD rules) by 31 December 2021, are deemed to have distributed the said 70% amount of profits.
The said deemed dividend distribution of any undistributed profits should be subject to SDC at 17%.
The said rules/obligation should only apply to the portion of the profits which are attributable to ultimate shareholders which are both Cyprus tax residents and domicile individuals.
It is noted that shareholding should be assessed as of 31 December 2021.
Unlike SDC, the above-mentioned deemed dividend distributions should attract GHS at the rate of 2,65%, irrespective of the domicile status of the (direct) shareholders, i.e. the only condition that needs to be satisfied is for the (direct) shareholders to be Cyprus tax resident individuals (domicile or non-domicile). GHS should be capped at €180.000 (income) per individual.
Relevant Deadline for settlement of SDC / GHS
The relevant SDC and/or GHS (if any) needs to be (withheld and) settled by the company/ies by 31 January 2022. Late settlement of SDC and/or GHS as well as late submission of relevant forms, would attract interest and penalties.
How we can help
We stand ready to clarify any queries you may have and provide any assistance that you may require with the relevant calculations, payments and filing of relevant forms.