Dividends Received by Cyprus Companies

The Cyprus tax reform generally retains the long-standing exemption from Cyprus Special Defence Contribution (“SDC”) applicable to dividends received by:

• Cyprus tax resident companies, and
• Cyprus permanent establishments of foreign companies

from participations in other Cyprus tax resident companies.

Accordingly, intercompany dividends within Cyprus generally continue to remain exempt from Cyprus SDC.

The retention of the exemption remains particularly important for:

• Cyprus holding structures,
• group companies,
• investment structures, and
• corporate reorganisations.

Transitional Exceptions to the Exemption

Although the general exemption continues to apply, the revised framework introduces specific transitional exceptions under which certain dividends may remain subject to Cyprus SDC at:

• 17%.

The transitional taxation rules apply primarily to dividends distributed out of:

• historical profits, and
• profits generated before the commencement of the new framework.

The relevant provisions are temporary in nature and generally expire by:

• 31 December 2031.

Dividends Paid Out of Historical Profits

Under the revised framework, dividends received by Cyprus tax resident companies may remain subject to Cyprus SDC at 17% in the following cases:

• dividends received in 2026 where the dividends are distributed out of profits relating to the years ended 31 December 2024 or 31 December 2025; and
• dividends received in 2027 where the dividends are distributed out of profits relating to the year ended 31 December 2025.

The distinction between:

• pre-2026 profits, and
• post-2025 profits

therefore remains particularly important during the transitional period.

Indirect Dividends and the Four-Year Rule

The revised framework also introduces rules relating to indirect dividend distributions received more than four years after the end of the tax year in which the relevant profits were generated.

Broadly, Cyprus SDC at 17% may continue to apply where:

• the dividend is received indirectly,
• more than four years have elapsed since the end of the tax year in which the underlying profits were earned,
• the dividend is received on or before 31 December 2031, and
• the profits derive from periods ending up to 31 December 2025.

The provisions therefore remain particularly relevant for:

• multi-tier holding structures,
• intermediary holding companies,
• and group structures involving delayed profit distributions.

Exemption for Non-Resident and Non-Dom Ownership Structures

The revised provisions generally apply to Cyprus tax resident companies receiving dividends from other Cyprus tax resident companies.

However, the dividends may remain exempt where the dividend receiving company is directly or indirectly owned by:

• non-Cyprus tax resident persons, or
• Cyprus tax resident individuals benefiting from the Cyprus non-dom regime.

The interaction between:

• corporate ownership structures,
• Cyprus domicile rules, and
• shareholder tax residency

therefore remains particularly important in practice.

Reduction for Amounts Already Subject to SDC

The legislation also provides that the amount of dividend income subject to Cyprus SDC is reduced by amounts already subjected to Cyprus SDC dividend taxation.

This may become relevant in situations involving:

• disguised dividends,
• prior deemed dividend distributions,
• historical distributions, or
• amounts previously taxed under earlier Cyprus SDC provisions.

The purpose of the rule is generally to reduce the risk of double taxation on the same economic distribution.

Interaction with Historical Profits and Transitional Rules

The revised framework maintains a complex interaction between:

• historical reserves,
• accumulated retained earnings,
• prior deemed dividend distributions,
• disguised dividends, and
• transitional SDC rules.

Companies with significant historical profits may therefore need to continue monitoring:

• accounting periods,
• historical reserves,
• dividend timing, and
• prior SDC exposures

throughout the transitional period ending in 2031.

Practical Examples

Example 1 – Intercompany Dividend Exemption

A Cyprus holding company receives dividends from another Cyprus tax resident subsidiary in 2028 out of profits generated in 2027.

Under the revised framework, the dividend would generally remain exempt from Cyprus SDC.

Example 2 – Transitional 17% SDC

A Cyprus company receives dividends in 2026 from another Cyprus company out of profits generated during 2025.

Because the profits relate to the transitional period, the dividend may remain subject to Cyprus SDC at 17%.

Example 3 – Indirect Dividend after Four Years

A Cyprus holding structure receives an indirect dividend in 2030 derived from profits generated in 2025.

Where more than four years have passed since the end of the relevant tax year, the dividend may continue to fall within the transitional 17% Cyprus SDC framework.

Practical Impact of the Reform

The retention of the general exemption for intercompany dividends remains an important feature of the Cyprus corporate tax framework.

At the same time, the transitional exceptions applicable until 31 December 2031 may create additional complexity for:

• group structures,
• holding companies,
• historical reserves, and
• delayed dividend distributions.

Cyprus groups and holding structures may therefore need to carefully review:

• historical profit pools,
• timing of distributions,
• ownership structures,
• indirect participation chains, and
• prior SDC exposures.

Commentary

The Cyprus tax reform generally preserves the attractive treatment of dividends received between Cyprus tax resident companies.

The continuation of the intercompany dividend exemption remains highly important for Cyprus holding and investment structures.

However, the transitional rules applicable until 2031 introduce additional technical complexity in relation to:

• historical profits,
• indirect distributions,
• accumulated reserves, and
• prior SDC exposures.

The interaction between the transitional rules and the broader Cyprus SDC framework is therefore expected to remain particularly important during the coming years.

Contact Rightax

For further information or professional assistance regarding the Cyprus tax reform, international tax matters or Cyprus corporate structures, please contact the Rightax tax advisory team.

+357 99 108 510

[email protected]

The above information is provided for general guidance only. It does not constitute legal or tax advice. Always consult a qualified professional for advice tailored to your specific circumstances