Deemed Dividend Distribution for 2022
Deadline 31/01/2023
Summary
Companies with accounting profits for the tax year 2020 that fall within the DDD provisions, would have to declare an appropriate amount of dividend, in order to meet the 70% threshold of distributed profits on or before 31 December 2022 and where applicable, pay the relevant SDC and GESY by the end of the following month that the dividend was declared.
Otherwise, on 31 December 2022, the relevant undistributed profits (up to the 70% threshold) would be considered as deemed distributed and the relevant SDC and GESY would need to be paid by 31 January 2023.
Introduction
The Deemed Dividend Distribution (DDD) provisions apply to the profits of Cypriot tax resident companies that are ultimately attributable to shareholders which are Cypriot tax resident and Cypriot domiciled individuals. These provisions do not apply to the proportion of profits that are ultimately attributable to shareholders which are non-Cypriot tax resident individuals or Cypriot tax resident individuals that are not Cypriot-domiciled.
The DDD provisions apply to all Cyprus companies and indicates that 70% of their after tax profits must be distributed within 2 years from the tax year in which the profits are generated.
Special Defence Contribution (SDC) of 17% and General Healthcare Scheme (GHS) of 2.65% (as of 1/6/2020) must be deducted at source depending on the tax residence and domicile status of each shareholder. The net amount is given to the shareholders and the SDC and GHS contributions have to be paid to the Tax Department by the Company.
The payment date for SDC is at the end of the following month after the actual distribution date.
If 70% of the relevant profits are not distributed up to the due date, then Deemed Dividend Distribution (DDD) arises and the respective SDC and GHS contributions must be paid on the distributable profits up to 70%.
Payment of Actual Dividends
The Deemed Dividend Distribution is reduced with payments of actual dividends paid during the relevant year the profits were generated or paid during the following two years.
Dividends to other Companies
Dividends paid to another company are not subject to SDC and GHS, but subject to the following exemption.
Exemption: if the deemed distribution date comes first, then SDC and GHS contributions are payable and no refund is available for the CY resident companies.
Four year rule: Applicable to dividends paid between Cyprus tax resident companies – if four years have passed from the end of the year in which the profits arose, then the above exemption does not apply.
Payments of SDC and GHS
Prompt payments are made via JCC smart or online banking while late payments can only be made via online banking.
The relevant tax codes per payment type are provided below:
SDC on actual dividends paid – Tax code 603
SDC on deemed dividends distribution – Tax code 623
GHS contributions on actual dividends paid – Tax code 703
GHS contributions on deemed dividends distribution – Tax code 723
Tax declaration for actual dividend distribution
For actual dividend distribution, Form T.D.603 “Declaration of withheld Special Contribution for Defence (SDC) and General Healthcare Scheme (GHS) from Dividends” should be submitted by the end of the following month that the dividend was declared, through TAXISnet. Late submission carries a fixed penalty of €100.
Interest and penalties for late payment
- Interest of 75% per annum is charge if SDC or GHS is not paid on time.
- €100 for failure to submit a tax return or to supply information within the deadline set by the law.
- 5% penalty for failure to pay the related tax by the due date.
- An additional penalty of 5% on the tax due may be imposed if the tax remains unpaid two months after the above due dates.
