The Ultimate EU Holding
Secure your passive income. Zero tax for Non-Doms and a new, reduced 5% rate for domiciled residents.
The Special Defence Contribution (SDC) is the primary tax on dividends, interest, and rental income in Cyprus. Following the landmark tax overhaul voted on December 22, 2025, the SDC regime has been drastically simplified to favor entrepreneurs and investors.
As of January 1, 2026, the SDC landscape has shifted from a “punitive” tax to one of the most competitive in the EU.
| Income Source | Pre-2026 Rate | 2026 Voted Reality | Non-Dom Resident |
| Dividends | 17% | 5% | 0% |
| Rental Income | 2.25% (eff.) | ABOLISHED (0%) | 0% |
| Passive Interest | 30% | 30% | 0% |
| Government Bonds | 3% | 3% | 0% |
| Deemed Dividends | Mandatory | ABOLISHED | N/A |
1. Abolition of Deemed Dividend Distribution (DDD)
For profits earned after January 1, 2026, the “Deemed Distribution” rules, which forced companies to pay out 70% of profits every two years, are completely repealed. You now have total control over your cash flow and reinvestment strategy.
2. Rental Income: No More SDC
Previously, rental income was subject to both Income Tax and SDC. From 2026, SDC on rent is abolished. Rental income is now only subject to the standard Income Tax, which begins after your €22,000 tax-free threshold.
3. The “Forever Non-Dom” Flat Fee (New)
If you are approaching the 17-year limit of the Non-Dom regime, the 2026 reform introduces a revolutionary alternative: Pay a flat €50,000 annual fee to maintain your SDC, exempt status for up to two 5 year periods.
To ensure the fairness of the new 5% rate, the Tax Commissioner has introduced two critical anti-abuse measures:
The Golden Rule: If you move to Cyprus from abroad, you are generally considered Non-Domiciled for your first 17 years. This means you pay 0% SDC Tax on your global dividend and interest income.
Before, you had a maximum time to pay yourself the dividends from your Cypriot company.
The Cyprus government has abolishing Deemed Dividend Distribution for profits earned from 2026 onwards, replacing it with a simplified tax only on actual distributions.
SDC stands for Special Defence Contribution. It is a tax imposed on passive income sources, specifically dividends, interest, and rental income, to fund national defence. It only applies to Cyprus-domiciled tax residents.
For domiciled residents, dividends are taxed at 17% SDC. For Non-Dom residents and non-residents, dividends are taxed at 0%. Note that a 2.65% GeSY contribution still applies to dividends for all tax residents, capped at €180,000 of total income.
Only individuals who are both tax residents of Cyprus and domiciled in Cyprus pay SDC on rent. If you are a foreign investor or a Non-Dom resident, you are exempt from this specific contribution.
No. SDC on rental income has been abolished for both individuals and companies starting from the 2026 tax year.
No. Interest earned from the “ordinary course of business” (active interest) is exempt from SDC and is instead taxed under the standard Corporate Tax rate (12.5%).
From January 1, 2026, the SDC rate on actual dividend distributions for domiciled residents is reduced from 17% to 5%.
No. As a Non-Dom, you remain legally exempt (0%) from SDC on dividends and interest. The 5% rate is for domiciled residents, and the 10% rate is a penalty for residents attempting to disguise dividends.
Yes. While SDC may be 0% or 5%, all tax residents (including Non-Doms) must pay the 2.65% GeSY (Healthcare) contribution on dividend income, capped at an annual income of €180,000.
