Cyprus SDC on Dividends from 2026: 5%, and the 17% Still Owed on Old Profits

What this covers

Special Defence Contribution on dividends fell from 17% to 5% on 1 January 2026. That is the headline, and it is correct, but it only tells you what happens to profits your company earns from 2026 onwards.

Profits earned up to and including 2025 stay at 17%. A shareholder distributing retained 2024 profits in 2026 pays 17%, not 5%. That is the single most expensive thing on this page and almost nobody states it correctly.

This guide is for Cyprus tax residents who are also domiciled in Cyprus. If you are non-domiciled you are outside SDC entirely and none of these rates touch you, which is covered in the non-dom guide. SDC is charged only on people who are both resident and domiciled, which is why the reform matters most to Cypriots and to long-stayers who have crossed the 17 of 20 years line.

The rates from 2026

What they replaced, to 2025

Three things changed at once: the dividend rate fell to 5%, SDC on rents was abolished outright, and deemed dividend distribution was abolished for profits earned from 2026. A fourth thing was added: the 10% charge on disguised distributions.

The €12,000 interest band is a refund, not a lower withholding. The law gives an individual whose total annual income including interest does not exceed €12,000 the right to reclaim the SDC withheld above the amount corresponding to 3%.

The trap: profits earned before 2026

The reform is prospective. Two separate rules keep the old 17% alive on old profits, and they operate at the same time.

1. Actual dividends from pre-2026 profits are charged at 17%

Article 3(1)(a) of the SDC Law sets the individual rate at 5%. A proviso to it then charges 17% on dividends that an individual shareholder receives from a Cyprus resident company where both of these are true:

• the dividend is paid out of profits of tax years up to and including 2025, and
• it is received within six years of the date N.245(I)/2025 came into force, which was 1 January 2026, so through the end of 2031

Read that carefully. It is the year the profits were earned that fixes the rate, not the year the dividend is paid. Paying yourself out of the 2024 reserve in 2026 costs 17%. Paying yourself the same amount out of 2026 trading profit costs 5%.

Two further points that follow from the same provision:

It is limited to Cyprus resident companies. The 17% proviso applies to dividends from a company resident in the Republic. A dividend from a foreign company out of its pre-2026 profits is not caught by it.

You are not charged twice. The dividend is reduced by anything already deemed distributed under Article 3C or under the old Article 3(3), and by any dividend paid out of income that itself derived from dividends on which SDC was already paid.

2. Deemed distribution survives, but only for 2024 and 2025 profits

Deemed dividend distribution has not simply been switched off. New Article 3C keeps it running for exactly two years of profits.

A Cyprus resident company is treated as having distributed 70% of its accounting profits for tax years 2024 and 2025, after deducting the corporation tax paid or payable on them, to its interested shareholders at the end of the two-year period from the end of the tax year the profits relate to. The shareholders are charged 17% on that deemed dividend.

Profits of 2023 and earlier are not in Article 3C, because their two-year clock had already run out under the old rules.

The mechanics that matter:

• “Profits” means accounting profits, computed under accepted accounting principles after any transfers to reserves required by law. Group loss relief under Article 13(4) to (8) of the Income Tax Law and revaluation amounts, including extra depreciation, do not affect them. “Corporation tax” for this purpose includes SDC, capital gains tax, and any foreign tax not credited.
• Actual dividends reduce it. The deemed dividend is cut by any actual dividend paid during the two years from the end of the year the profits relate to, including one paid in that year itself. Paying a real dividend in time is how you avoid a deemed one.
• It only bites where a Cyprus resident individual is behind the shares. Article 3C applies only to profits attributable, directly or indirectly, to an individual who was resident in the Republic on the date of the deemed distribution. Circular 2017/7 confirms deemed distribution does not apply to shareholders who are individuals resident but not domiciled.
• The company pays first. SDC due from a shareholder on a deemed distribution is paid in the first instance by the company, which then charges it to the shareholders.
• There is no refund on a later real dividend. SDC paid on a deemed distribution is not refunded when the profits are actually distributed. The one exception is narrow: a person who is not resident in the Republic and receives a dividend from profits that suffered deemed distribution under the old Article 3(3) can claim back the attributable SDC, for shares held on 31 December 2025.
• Liquidation pulls it forward. On dissolution, the profits of the last five years, to the extent earned in tax years up to and including 2025 and not already distributed or deemed distributed, are treated as distributed and charged at 17%.

The new 10% on disguised distributions

New Article 3A charges 10% on an individual resident in Cyprus who is a shareholder, direct or indirect, in a Cyprus resident company, on the amount of any disguised distribution of dividend. There was no such charge before 2026.

The amount is the sum of:

(a) The market value of a company asset used by the shareholder or a connected individual. Not an annual rental value. The full market value of the asset, measured at the date personal use begins, apportioned by the percentage of personal use. If the asset is not connected with the company’s business, the personal use percentage is deemed to be 100%. If personal use later increases, the extra amount is measured on the market value at the date of the increase. If personal use falls, nothing is refunded.

(b) The shortfall on an asset the company transfers to the shareholder. The difference between the market value of the asset at the date of disposal and the consideration actually paid. Any amount already charged under (a) on the same asset is deducted.

Neither limb applies where the company acquired the asset by gift from that shareholder or a connected individual.

Article 3A does not apply where the benefit is already taxed as employment income under Article 5(1)(b) or 5(2)(b) of the Income Tax Law, or to distributions of assets to a shareholder in a capital reduction, dissolution or liquidation. Connected individuals are defined by Article 33(3)(a) and (b) of the Income Tax Law.

Nothing paid under Article 3A is refunded later, even if the shareholder subsequently receives a proper dividend, contributes assets to the company to make good the amount, or simply stops using the asset.

There is a matching change on the income tax side. N.244(I)/2025 amended Article 33 of the Income Tax Law so that the deemed-benefit rule does not apply to a shareholder’s use of company assets to the extent SDC on a disguised distribution has been paid for that use. The two charges do not stack.

Worked example

A Cyprus company with one shareholder who is Cyprus tax resident and domiciled. Its 2024 profits after corporation tax were €400,000. It has not paid a dividend.

If it does nothing. At 31 December 2026 the company is treated as distributing 70% of €400,000.

• Deemed dividend = €280,000
• SDC at 17% = €47,600, payable by 31 January 2027
• The company pays it and charges it to the shareholder

If it pays out the full €400,000 as a real dividend during 2026.

• The dividend comes from 2024 profits, so the 17% proviso applies, not the 5% rate
• SDC = €400,000 × 17% = €68,000
• The actual dividend falls inside the two years from the end of 2024, so it reduces the deemed dividend to nil and there is no further charge in December

The same €400,000 paid out of 2026 profits instead.

• SDC = €400,000 × 5% = €20,000

The rate is set by the year the profits were earned. Distributing old money and new money in the same year, from the same company, to the same person, produces a €48,000 difference on identical amounts.

What commonly goes wrong

Applying 5% to retained profits. The most expensive mistake available in 2026. Profits of 2025 and earlier carry 17% for six years from 1 January 2026. Ask your accountant which profit year a distribution is coming out of before you declare it, and note that Article 3(3) of the SDC Law requires the company to give each shareholder a certificate stating the year in which the distributed profits were earned.

Assuming deemed distribution is gone. It is abolished only for profits from 2026. For 2024 and 2025 profits it is still there under Article 3C, and it lands on 31 December 2026 and 31 December 2027.

Missing 31 January. SDC on a deemed distribution is due by 31 January of the third year after the profit year. The charge itself is silent until then, so it is easy to walk past.

Letting a shareholder use a company asset. A car, a flat, a boat held in the company and used privately now triggers a 10% charge on the asset’s full market value, not on an annual benefit. If the asset has nothing to do with the company’s business, personal use is deemed to be 100% and the whole value is in charge. And the money is never refunded.

Believing 17% applies to all foreign dividends from old profits. The 17% proviso applies to dividends from a company resident in Cyprus. That is a real distinction and it is easy to get backwards.

Assuming a low-tax jurisdiction always gets 5%. Circular 1/2026 lists eleven low-tax jurisdictions for 2026: Anguilla, the Bahamas, Bahrain, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, the Turks and Caicos Islands and Vanuatu. But Anguilla and Vanuatu are also on the EU non-cooperative list, and the circular states that while they remain on it the 17% non-cooperative treatment applies to them and the 5% low-tax rate does not. The list is reassessed annually.

Moving assets to a non-domiciled spouse. New Article 4A catches this. If an individual domiciled in Cyprus transfers assets to a spouse or a relative to the third degree who is not domiciled in Cyprus, and the Commissioner finds that avoiding SDC was a main purpose, the income from those assets remains subject to SDC and can be collected from either person. Article 4B adds a general anti-abuse rule on top.

Thinking non-doms need any of this. They do not. Non-domiciled residents are outside SDC on dividends and interest completely, at any rate and from any profit year. The question for a long-term resident is when they cross the 17 of 20 years line and become deemed domiciled. Article 3D now offers an alternative for someone with no Cyprus domicile of origin who has crossed it: a flat €50,000 a year, €250,000 for a five-year period, electable for up to two periods, applied for by 30 June of the first year. That is covered in the non-dom guide.

Where to check

The Tax Department publishes both rate tables, for 2026 and for the years to 2025, on its Special Defence Contribution page. It is Greek only and it is the cleanest place to see the change side by side.

The transitional rules are not on that page, and they are not in the consolidated law on CyLaw either, which at the time of writing is updated only to N.220(I)/2025. They are in N.245(I)/2025, which replaced Article 3 and inserted Articles 3A to 3D. If someone tells you retained profits are now taxed at 5%, that law is the document to put in front of them.

Withholding runs through Forms T.F.603 for dividends and T.F.602 for interest, both of which also collect the General Healthcare System contribution. For 2026 the Department has said both returns are being moved from TAXISnet to Tax For All and are temporarily unavailable, and that liabilities should be raised through the payments portal in the meantime.

Which profit year a distribution comes out of is an accounting question with a large tax consequence. Have it confirmed by a firm licensed to advise in Cyprus before the dividend is declared, not afterwards.