What Is Deemed Dividend Distribution (DDD) and When Do Companies Become Liable?

The Deemed Dividend Distribution (DDD) mechanism applies when a Cyprus-resident company does not distribute at least 70% of its after-tax profits within two years from the end of the year to which those profits relate.

The rule taxes dividends that were not actually distributed, but are treated as distributed solely for the purpose of applying contribution taxes.

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Who Is Affected by the Deemed Dividend Distribution

DDD applies only when:

• The shareholders are individuals,

• They are Cyprus tax residents, and

• They have a Cyprus domicile (“domiciled”), therefore subject to SDC.

Not affected:

• Foreign shareholders without a Cyprus domicile (non-dom),

• Foreign shareholders who are not Cyprus tax residents,

• Corporate shareholders.

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How Deemed Dividend Distribution Is Calculated

After the two years:

1. The company determines its after-tax profits.

2. 70% is deemed distributed.

3. Any actual dividends paid during the two years reduce the deemed distribution accordingly.

Example 1

• 2023 profits: €100,000

• After corporate tax: €87,500

• 70% threshold: €61,250

• Actual dividends paid: €20,000

• Deemed distribution: €41,250

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Special Defence Contribution (SDC) on Deemed Distribution

DDD is subject to SDC at 17%, but only when the shareholder:

• is a Cyprus tax resident, and

• is domiciled.

Non-dom individuals pay no SDC, neither on deemed nor actual dividends.

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General Healthcare System Contribution (GHS)

GHS does apply to deemed dividends.

• Rate: 2.65%

• Applies to all Cyprus tax residents, regardless of domicile.

• Since deemed dividends are treated as dividend income, GHS applies even without actual dividend payments.

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When DDD Must Be Submitted and Paid — Deadlines

The deemed distribution of a year’s profits is assessed two years later.
If the required 70% has not been distributed, the company must submit and pay the contribution.

🔹 Submission & Payment Deadline

Payment must be made:
👉 By 31 January of the year following the end of the two-year period.

Deadline Examples

• Profits 2023 → two-year period ends 31/12/2025 → Pay by 31/01/2026

• Profits 2024 → two-year period ends 31/12/2026 → Pay by 31/01/2027

👉 For all Cyprus company tax deadlines, refer to our full annual due-date guide.

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🔹 Interest & Penalties

If submission or payment is late:

• Interest applies from the first day of delay,

• €100 administrative fine for late form submission,

• Additional penalties may apply from the Tax Department.

👉 See our detailed “Penalties & Interest” guide for more information.

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🔹 Practical Tip

To avoid penalties:

• perform calculations before January,

• rely on professional accountants or tax advisors to ensure accuracy.

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Exceptions & Practical Considerations

Any actual dividend paid within the two-year period reduces the deemed dividend amount.
The more profit distributed early, the smaller the deemed dividend.

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Example 2: Distributing the Full 70% On Time

If the company distributes the full 70% within the two-year period, no deemed dividend arises.

Example

• After-tax profits: €87,500

• Actual dividend (70%): €61,250 in December 2025

Result:

• No deemed distribution

• Contributions apply only to the actual dividend:
  • SDC 17% for domiciled individuals
  • GHS 2.65% for all Cyprus tax residents

• The remaining 30% (€26,250) remains untaxed in the company.

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Domicile & Non-Dom Rules for Foreign Individuals in Cyprus

• Domicile of origin = paternal origin

• Domicile of choice = permanent establishment

A person is non-dom if:

1. They do not have a Cyprus domicile of origin, and

2. They have not lived in Cyprus for more than 17 of the last 20 years.

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Tax Insight: Upcoming Changes to the Dividend Tax Framework

The reform has not yet been passed, but current proposals indicate:

• DDD may be abolished for profits earned from 1 January 2026,

• A reduced 5% SDC rate may apply to actual dividends for domiciled individuals.

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What Companies Are Evaluating Today

For profits earned up to 31/12/2025, it remains unclear whether:

• Existing DDD rules will apply to the remaining 30%, or

• Those profits may benefit from the new 5% rate.

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Our Professional Recommendation

Due to legal uncertainty:

• distribute only the required 70% to satisfy current DDD rules,

• avoid distributing the remaining 30% until the new law is finalised.

This approach maintains flexibility and avoids irreversible tax consequences.

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How to Pay DDD Contributions — Practical Guide

Payments are made electronically through the Cyprus Tax Portal:
👉 https://taxportal.mof.gov.cy/

Required:

• login credentials,

• correct payment category,

• verification of amounts.

Most companies assign this to their accounting or tax advisors.

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Conclusion

For 2025, DDD remains a key compliance obligation.
Companies should monitor profits, plan distributions carefully, and remain alert to upcoming legislative changes that may affect future taxation.

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Contact Us

For:

• accurate DDD calculations,

• correct SDC & GHS application,

• guidance ahead of legislative reforms,

• or assistance with payment and submission,

Rightax is here to assist.

Reach out for expert help with tax, accounting, audit, or company setup in Cyprus.

+357 99 108 510

[email protected]