How much is Dividend tax in Cyprus?
Dividends are the distribution of retained company’s earnings to certain shareholders. The board of directors makes this decision. A dividend payment may be in the form of cash or additional stock. Therefore, Cyprus Dividend Tax is the Tax on these retained earnings that are distributed.
Dividend income is when dividends are received either from Cyprus Tax Resident companies or from foreign investments. They are exempt from all taxes.
Due to specific anti-avoidance provisions, Dividends received from other Cyprus tax resident companies are exempt from all taxes.
Dividends earned from foreign investments are exempt from Corporate Income Tax (CIT) in Cyprus, except for dividends that are deductible for tax purposes for the paying company.
How does a dividend work?
- The company gains profits and has retained earnings.
- Usually, the management team will decide if some of the excess profit should be paid out to the shareholders, instead of being re-invested.
- The board will approve the plan for the dividends.
- The company will announce the value of the dividend the date it will be paid, the record date, etc.
- The shareholders receive their payment.
What types of Cyprus Dividends are there?
Assist Dividend
When a company is not limited to paying its shareholders in cash or shares. The payment could be investment securities, physical assets, real estate, etc. However, this is not a common practice.
Cash Dividend
This is the most common type of dividend used. The board of directors, on the date of declaration, settles to pay a certain dividend in cash to the investors holding the company’s stock on a specific date.
Stock Dividend
The issuance by a company of its own common stock to its own shareholders, without any consideration.
If the amount issued by the firm is less than 25% of the previously outstanding shares, then the transaction is treated as a stock dividend. If it is more than 25% of the previously outstanding shares, then the transaction is treated as a stock split.
Liquidating Dividend
When the originally contributed capital by the shareholders is wished to be returned by the board of directors, and may be a precursor to the business shutting down. The accounting side of a liquidating dividend is the same as an entry for a cash dividend. However, the funds are considered to come from the additional paid-in capital.
Scrip Dividend
A company may not have enough funds to issue dividends in the future, so it uses a scrip dividend. This is basically a promissory note (that may or may not include interest) so that the shareholders can be paid at a later date. In other words, this dividend creates a payable note.
Property Dividend
A non-monetary dividend may be issues to a company, instead of making stock or cash payments. The assets are recorded at their fair market value when they are distributed. However, since the fair market value is likely to vary, the company is able to record the variance as a gain or loss. This accounting rule can sometimes lead a business to deliberately issue property dividends in order to alter their taxable and/or reported income.
Recording a Stock Dividend
Transfer from retained earnings to the capital stock and additional paid-in capital accounts an amount equal to the fair value of the additional shares issued. The fair value of the additional shares issued is based on their fair market value when the dividend is declared.
There is no withholding tax on dividend payments in Cyprus.
Domicile tax residents of Cyprus currently pay 17% on dividend income, however this is to be amended in 2022.
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