What is Special Defence Contribution (SDC)?
Special Defence Contribution is a tax on certain passive income received by Cyprus tax-resident and domiciled individuals. From 1 January 2026 the rate on actual dividends is 5%, down from 17%.
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Current Rate (Applies when income is received)
5% on actual dividends from 2026 (was 17%). 17% on passive interest. 0% on rents from 2026. Non-domiciled residents pay 0% on dividends
Example
A domiciled Cypriot resident receives a €10,000 dividend out of post-2026 profits. SDC at 5% is €500. GESY of 2.65% can also apply to the dividend, within the annual income cap.
How Special Defence Contribution (SDC) works in Cyprus
SDC on rental income is abolished from 1 January 2026 for both individuals and companies. SDC on passive interest remains 17% for resident-and-domiciled individuals, while non-domiciled residents are exempt. Interest earned in the ordinary course of business is not passive and falls under corporate income tax.
The 5% dividend rate applies to distributions out of post-2026 profits. Dividends received by a Cyprus company from another company are generally outside corporate income tax.
GESY health contributions of 2.65% also apply to an individual's dividend income within the €180,000 annual income cap.
Related terms
Deemed dividend distribution was a rule treating a company as distributing 70% of its accounting profits two years after the year end. It is abolished for profits earned from 1 January 2026.
Cyprus tax residents who are not domiciled in Cyprus are exempt from Special Defence Contribution on dividends and interest for 17 years of residence.
GESY is Cyprus's national health system. Contributions are 2.90% from employers and 2.65% from employees, collected through payroll on income up to €180,000 a year per person.
Corporate income tax is charged on the worldwide taxable profit of Cyprus tax-resident companies. The rate is 15% from 1 January 2026, up from 12.5% for tax years up to and including 2025.
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