Defence tax is payable only by individuals who are considered to be tax residents of Cyprus (as defined in the income tax laws), which effectively means an individual who spends at least 184 days in Cyprus every tax year.
SDC tax is payable on dividends (17%), interest (30%) and rental income (3% on 75% of the income), earned by a Cyprus tax resident individual from sources within Cyprus and outside Cyprus.
The law has been amended so that individuals who are not considered to be domiciled in Cyprus are no longer subject to SDC on dividends, interest and rents, even if they are considered as tax residents of Cyprus. The effective rate of the amendment to the SDC Law is 16 July 2015.
An individual can be considered as domiciled in Cyprus either (i) by domicile of origin or (ii) by domicile of choice, as defined by the Wills and Succession Law of Cyprus.
For the purposes of determining liability to SDC tax an individual has a domicile in Cyprus if he or she has a domicile of origin in Cyprus as defined in the Wills and Succession Law, unless he or she has acquired and maintains a domicile of choice outside Cyprus and was not a tax resident of Cyprus for any period of at least 20 consecutive years prior to the year of assessment, or unless he or she was non resident for purposes of the Income Tax Law for any of the immediately preceding 20 tax years. In any case, an individual will be deemed to be domiciled in Cyprus if he or she has been a tax resident for 17 or more of the 20 tax years immediately preceding the year of assessment.
The amendment includes an anti-avoidance provision restricting its application in cases where domiciled individuals transfer assets to related non domiciled persons in order to take advantages of the changes.
