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21.10. Deemed dividend distribution rules

In relation to dividend distributions from Cypriot companies to Cypriot tax resident shareholders, it should be noted that any profits attributable to shareholders (companies or individuals) who are Cyprus tax residents are subject to the deemed dividend distribution rules. These rules provide that if a Company, which does not distribute at least 70 per cent of its accounting profits after tax, as defined by the relevant law, within two years after the end of the tax year to which the profits relate, will be deemed to have distributed as a dividend 70 per cent of such profits. Special Defence Contribution tax at a rate of three (3) per cent will be imposed at the end of the two years on the amount deemed to be distributed to tax residents of Cyprus.

Further, the redemption of a unitholding in a collective investment scheme does not constitute a reduction of capital under the deemed dividend distribution provisions of the legislation and therefore, there will be no tax implications on the distribution arising from the redemption.

The deemed dividend distribution provisions do not apply to profits attributable to non-Cyprus tax resident shareholders (companies or individuals).