Deemed Dividend Distribution (DDD) Obligations
We would like to remind you of the obligations arising from the Deemed Dividend Distribution (DDD) provisions under the Special Contribution for the Defence (SDC) Law.
The idea behind the Law
DDD provisions aim to ‘oblige’ Cyprus tax resident companies ultimately owned by Cyprus tax resident (and domiciled) individuals, to distribute their annual profits within 2 years from the year such profits have been generated. The idea is for the Cyprus Tax Department to collect taxes - more specifically SDC at 17%, and General Healthcare System (GHS) at 2.65% – which in case such companies had never been distributing such profits, the Office wouldn’t collect.
Scope of DDD Provisions
The DDD provisions apply to profits of Cypriot tax resident companies that are ultimately attributable to shareholders who are:
- Cypriot tax resident and domiciled individuals.
These provisions do not apply to profits attributable to shareholders who are:
- Non-Cypriot tax resident individuals, or
- Cypriot tax resident individuals who are not domiciled in Cyprus.
However, please note that contributions to the General Healthcare System (GHS) should still apply to both actual and deemed dividend distributions.
When Do the DDD Provisions Apply?
DDD provisions apply where a Cypriot tax resident company has not distributed at least 70% of its after-tax profits (as adjusted for DDD purposes) within two years from the end of the relevant tax year.
For tax year 2022, companies must distribute at least 70% of profits by 31 December 2024, otherwise:
- The undistributed portion of profits will be deemed distributed as of 31 December 2024,
- will be subject to SDC at 17%,
- will be subject to GHS at 2.65%,
Any applicable SDC and GHS contributions must be paid by 31 January 2025.
GHS Contributions on Dividends
Both actual and deemed dividend distributions to Cypriot tax resident individuals (irrespective of their ‘domicile status’) are subject to GHS contributions at 2.65%.
- For actual dividends, GHS must be paid by the end of the month following the declaration of the dividend.
- For deemed dividends, GHS is due by 31 January 2025 (for tax year 2022).
Exemptions: Dividends paid to non-Cypriot tax residents or Cypriot tax resident companies (unless the 4-year rule applies) should be exempt from both SDC and GHS contributions.
Payment Methods
Payments can be made as follows:
- Credit/Debit Card: Via the JCCsmart gateway.
- Online Banking: By selecting the appropriate option next to the Payment Reference Number (PRN).
Note: Late payments can only be made through online banking.
Penalties for Late Payments
Late payment of SDC and GHS contributions will incur:
- 5% annual interest on the outstanding amount.
- A 5% penalty if unpaid by the due date.
- An additional 5% penalty if the amount remains unpaid two months after the due date.
Tax Declarations for Dividend Distributions
For any actual or deemed dividend distributions resulting in SDC or GHS liabilities, the relevant forms must be submitted via TAXISnet:
- Actual Dividends: By the end of the month following the declaration.
- Deemed Dividends: By 31 January 2025.
Late Submission Penalty: Fixed at €100.
How We Can Assist
We are at your disposal to assist with:
- Relevant ’DDD calculations’.
- Administration of payments.
- Submission of required declarations.
If you have any questions or require our assistance, please do not hesitate to contact us.