Amendment of the Special Defence Contribution law - Expansion of application of 3% reduced rate

The Cyprus Parliament passed amendments to the Special Defence Contribution ("SDC") law on May 26, 2022, with the goal of expanding the application of the reduced SDC rate of 3%. On June 8, 2022, the amending SDC law was published in the Gazette and became effective on that date.

The reduced rate of 3% applied to interest income received by Cyprus tax resident domiciled individuals from savings certificates and development bonds of the Republic of Cyprus, corporate bonds, and interest received or credited by a Provident Fund or the Social Insurance Fund under the old provisions of the law [Article 3(2c)].

The 3% rate will now apply to both Cyprus tax resident domiciled individuals and Cyprus tax resident legal entities on interest received from savings certificates and development bonds issued by the Republic of Cyprus or any other State, corporate bonds listed on a recognized Stock Exchange, as well as interest received or credited by a Pension Fund, a Local Authority, a Public entity or a Semi-Governmental Organization, a Provident Fund or a Provident Fund.

Interest income derived from the ordinary carrying on of a business or closely connected with the ordinary carrying on of a business is not considered interest and thus does not fall under the provisions of the SDC law, according to the amending law.

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