Cyprus Tax Reform: Special Defence Contribution (SDC)

The Cypriot government is proposing major reforms to the Special Defence Contribution (SDC), aiming to simplify the tax system and enhance economic competitiveness. Key changes include:

• Abolition of Deemed Distribution of Profits – Companies will no longer be taxed on retained earnings that are not actually distributed as dividends.
• Elimination of SDC on Rental Income – The current 3% SDC on rental income will be removed, reducing the tax burden on property owners and investors.
• Reduction of SDC on Dividends – The rate will drop from 17% to 5% for tax residents who are domiciled in Cyprus, with new anti-abuse rules to prevent tax avoidance through disguised dividends.
• Non-Domicile Status Adjustments – The 17-year non-domicile period remains, but individuals may extend it by paying an annual fee.

These changes aim to modernize Cyprus’s tax framework, attract investment, and ensure a fairer system. The reform is still under discussion and expected to take effect on January 1, 2026.