17 Dec Tax Alert – Deemed Dividend Distribution 2020 – Payment deadline 31st January 2021
Every Cyprus tax resident company must declare, at least, the 70% of its accounting profits for the year 2018 by 31 December 2020 and pay the Special Contribution for Defence of 17% and National Health Contribution of 2,65% by 31st January 2021.
Deemed Dividend Distribution (DDD) provisions
According to the DDD provisions, a Cyprus tax resident company should distribute at least 70% of its accounting profits to its Cyprus tax resident shareholders, as dividends, within two years from the end of the tax year to which such profits relate. Failure to distribute the aforesaid profits, then the relevant undistributed accounting profits would be considered as deemed distributed and the relevant Special Defence Contribution would need to be paid.
DDD provisions are applicable in cases that a Cyprus tax resident company has shareholders that are Cyprus tax residents and Cyprus domiciled and the Cyprus tax resident company has not distributed at least the 70% of its accounting profits for a specific tax year.
The DDD provisions also apply for National Health Contribution purposes in cases that a Cyprus tax resident company has ultimate shareholders Cyprus tax resident individuals (domicility is irrelevant).
Therefore, in the case that a Cyprus tax resident company has failed to distribute at least the 70% of its accounting profits for the year 2018 by 31 December 2020, then the DDD provisions of the Special Contribution for the Defence Law will come into force.
The DDD provisions on the accounting profits for the tax year 2018 will be triggered on 31 December 2020. The said provisions will come into force in case a Cyprus tax resident company does not distribute at least 70% of its 2018 accounting profits by 31 December 2020.
The National Health Contribution should also be paid by 31 January 2021 for the undistributed accounting profits.
Whereas a Cyprus tax resident company is ultimately owned by a non-Cyprus tax resident individual, the DDD provisions are not applicable.
The relevant form to be submitted by the end of the following month of the dividend declaration (actual or deemed) to the Tax Authorities is T.D. 603.
In the case of late payment of the special contribution for defence and national health contributions then there will be an imposition of interest at the rate of 1,75% per annum and to a 5% penalty of the tax due. It should also be noted that an additional 5% penalty may be imposed in the case that the special contribution for defence remains unsettled two months after the above due dates. Also, there is a penalty of €100 if the T.D. 603 form is not submitted within the deadlines.
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