Cyprus tax resident individual are taxed on their worldwide income, subject to allowing a tax credit for any foreign tax suffered on foreign income, irrespective of the existence of a tax treaty provided that such foreign income is subject to Cyprus income tax.
An individual is tax resident of Cyprus if (s)he spends in Cyprus more than 183 days (183 day rule) within the same tax year. (Subject to conditions)
Changes as from 01 January 2017:
An individual can also be a tax resident of Cyprus if does not spend more than 183 days in another country and is not tax resident of any other country and satisfies all the following (60 day rule):
- Spends at least 60 days in Cyprus within the same tax year
- Carries on a business in Cyprus and/or is employed in Cyprus and/or holds an office (director) in a Cyprus tax resident person at any time during the year
- Maintains a permanent home in Cyprus
The following income tax rates apply to individuals:
The tax year
Tax rate Accumulated tax
| Chargeable income for the tax year | ||
| Rate % | € | |
| First 19500 | Nil | Nil |
| From 19.501 – to 28.000 | 20 | 1700 |
| From 28.001 – to 36.300 | 25 | 3775 |
| From 36.301 – to 60.000 | 30 | 10885 |
| Οver 60.000 | 35 | |
Foreign pension income is taxed at the flat rate of 5% on amounts over €3.420. The taxpayer can however on an annual basis elect to be taxed at the normal tax rates and bands set out above.
Cyprus source widow(er)’s pension is taxed at the flat rate of 20% on amounts over €19.500. The taxpayer can however on an annual basis elect to be taxed at the normal tax rates and bands set out above.
Exemptions
The following are exempt from income tax:
| Type of income | Exemption |
| Dividend income | The whole amount |
| Interest income (Interest income arising in the ordinary course of the business, including interest closely connected with the ordinary carrying on of the business, is not considered as interest income and is not exempt) | The whole amount |
| Remuneration from any employment exercised in the Republic by an individual who was resident outside the Republic before the commencement of the employment (subject to conditions) | Lower of 20% of employment income or €8550 |
| Remuneration from any employment exercised in the Republic by an individual who was resident outside the Republic before the commencement of the employment, provided that the annual remuneration of the employee exceeds €100.000 (subject to conditions) | 50% of the remuneration |
| Remuneration from the rendering of salaried services outside the Republic to a non-resident employer or to a permanent establishment outside the Republic of a resident employer for a total period in the year of assessment of more than 90 days | The whole amount |
| Foreign exchange (FX) gains, with the exception of FX gains arising from trading in foreign currencies and related derivatives (subject to conditions) | The whole amount |
| Gains arising from disposal of Securities (subject to conditions) | The whole amount |
| Gains arising from a loan restructuring | The whole amount |
| Profits of a permanent establishment maintained outside the Republic (subject to conditions) | The whole amount |
| Rent from preserved building (subject to conditions) | The whole amount |
| Lump sum received as retiring gratuity, commutation of pension, death gratuity or as consolidated compensation for death or injury | The whole amount |
| Lump sum repayment from life insurance schemes or from approved provident funds | The whole amount |
In general, the below deductions and allowances are available for Cyprus tax resident individuals:
Tax Deductions
- Interest related to the acquisition of fixed assets used in the business.
- -20% of any gross rental income as a compensation for any expenses incurred for the letting of buildings.
- Capital allowances granted on the cost of rented property
- Interest paid on a loan for the acquisition of rented property.
- Expatriate relief for employees with emoluments higher than €100.000 per year (subject to conditions) 50% on gross emoluments
- Expatriate relief for employees with emoluments less than €100.000 per year (subject to conditions) – lower of 20% of gross emoluments or €8550.
- Subscriptions and contributions paid to trade unions or professional bodies.
- Donations to approved charitable organizations (accompanied with relevant receipts).
- Losses from business operations – carried forward for five years.
- Expenditure for the restoration of a preserved building (subject to conditions)
- Expenditure incurred for the acquisition of professional books
- Any form of expenditure incurred provided that, such expenses were absolutely necessary in performing employment duties, and have not been reimbursed by the employer.
Personal Allowances
Further to the tax deductions a Cyprus tax resident individual is eligible to certain tax allownces (in addition to tax deductions)
The total amount of tax allowances is restricted to 1/6th of net income (Net income is the total taxable income less any tax deductions)
- Social insurance contributions, as well as contributions to approved Provident Fund schemes, pension funds and contributions to medical or other approved funds (subject to conditions)
- Insurance premiums in respect of life insurances (subject to restriction rules)
Tax credit for foreign tax paid
Any tax paid abroad in respect of income taxed in Cyprus under income tax will be allowed as credit against the tax payable on such income in Cyprus irrespective of the existence of a Double Tax Treaty between the countries.
Basis of taxation
All Cyprus tax resident companies are taxed on their income accrued or derived from all chargeable sources in Cyprus and abroad. A non-Cyprus tax resident company is taxed on income accrued or derived from a business activity which is carried out through a permanent establishment in Cyprus and on certain income arising from sources in Cyprus.
A company is a tax resident of Cyprus if it is effectively managed and controlled in Cyprus. Foreign taxes paid can be credited against corporation tax liability.
Corporate tax rate 12.5%
Exemptions
| Type of income | Exemption limit |
| Profit from the sale of securities1 | The whole amount |
| Dividends (exemption for hybrid instruments) | The whole amount2 |
| Interest not arising from the ordinary activities or closely related to the ordinary activities of the company3 | The whole amount4 |
| Profits of a permanent establishment abroad, under certain conditions | The whole amount |
(1) The term ‘Securities’ is defined as shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated in Cyprus or abroad and options thereon. A circular issued by the Tax Authorities in 2008 further clarifies what is included in the term Securities, e.g. futures/forwards on Securities, swaps on Securities, depositary receipts, repurchase agreements, units in open-end or close-end collective investment schemes etc.
(2) Such dividend income may be subject to Special Defense Contribution. Dividends from hybrid instruments are taxed under Corporation tax rules.
(3) All the interest income of Collective Investment Schemes is considered to be arising from the ordinary activities or closely related to the ordinary activities of the Scheme.
(4) Such interest income is subject to Special Defense Contribution.
Losses Carried Forward
Tax losses incurred during a tax year and which cannot be set off against other income, can be carried forward and set off against future profits of the next 5 years (subject to conditions). This provision is applicable for all losses incurred from tax year 1997 onwards.
‘Tax group members’ can surrender current year losses to another profitable group member. (Subject to conditions)
A partnership or a sole trader transferring business into a company can carry forward tax losses into the company for future utilisation.
Losses from a permanent establishment abroad can be set off with profits of the company in Cyprus. Subsequent profits of an exempt permanent establishment abroad are taxable up to the amount of losses allowed.
| Individuals % | Legal entities % | |
| Dividend income from Cyprus resident companies | 17 | Nil |
| Dividend income from non-Cyprus resident companies | 17 | Nil1 |
| Interest income arising from the ordinary activities or closely related to the ordinary activities of the business | Nil | Nil |
| Other interest income | 302 | 302 |
| Gross Rental income (reduced by 25%) | 3 | 3 |
Notes
- Dividend income from abroad is exempt from defense fund contribution.
This exemption does not apply if:
- More than 50% of the paying company’s activities result directly or indirectly in investment income and the foreign tax is significantly lower than the tax burden in Cyprus. The tax authorities have clarified through a circular that “significantly lower” means an effective tax rate below 6,25%.
When the exemption does not apply, the dividend income is subject to special contribution for defense at the rate of 17%.
- Interest income from Cyprus government savings bonds and development bonds and all interest earned by a provident fund is subject to special contribution for defense at the rate 3% (instead of 30%).
In the case where the total income of an individual (including interest) does not exceed €12.000 in a tax year, then the rate is reduced to 3% (instead of 30%).
Any special contribution payable by the shareholder concerned in consequence of a deemed dividend distribution shall in the first instance be paid by the company at the rate of 17% (for years 2012 and 2013 20%) which will debit such contribution to the shareholders.
The provisions of DDD are only applicable to the extent of Cyprus tax resident Investors
Exemptions
The following disposals of immovable property are not subject to Capital Gains Tax:
- Transfers arising on death.
- Gifts made from parent to child or between husband and wife or between up to third degree relatives.
- Gifts to a company where the company’s shareholders continue to be members of the donor’s family and the shareholders continue to be members of the family for five years after the day of the transfer.
- Gifts by a family company to its shareholders provided such property was originally acquired by the company by way of donation. The property must be kept by the donee for at least three years. —For gifts that were made from the company to its shareholders and took place before 28 May 1999, the exemption applies irrespective of how the immovable property was originally acquired by the company.
- Gifts to charities and the Government.
- Transfers as a result of reorganisations.
- Exchange or disposal of immovable property under the Agricultural Land (Consolidation) Laws.
- Expropriations.
- Exchange of properties, provided that the whole of the gain made on the exchange has been used to acquire the other property. The gain that is not taxable is deducted from the cost of the new property, i.e. the payment of tax is deferred until the disposal of the new property.
| Nature of documents | Rate |
| – the first €5.000 | 0% |
| – between €5.001 – €170.000 | 0,15% |
| – above €170.000 | 0,2% * |
| Contracts without fixed sum | €35 |
* Capped at a maximum of €20.000 as from 1 March 2013.
- The Merchant Shipping Legislation fully approved by the EU provides for exemption from all direct taxes and taxation under tonnage tax regime of qualifying shipowners, charterers and shipmanagers, from the operation of qualifying community ships (ships flying a flag of an EU member state or of a country in the European Economic Area) and foreign (non-community) ships under certain conditions in qualifying activities.
- Exemption is also given in relation to the salaries of officers and crew of such ships.
- The exemption also applies to the bare boat charterer of a vessel flying the Cyprus flag under parallel registration.
- The application of the tonnage tax system is compulsory for owners of Cyprus flag ships and optional for owners of non-Cyprus flag ships, charterers and ship managers. Those who choose to enter the Tonnage Tax regime must remain in the system for at least 10 years.
Taxable persons charge VAT on their taxable supplies (output tax) and are charged with VAT on goods or services which they receive (input tax).
If output tax in a VAT period exceeds total input tax, a payment has to be made to the state. If input tax exceeds output tax the excess input tax is carried forward as a credit and set off against future output VAT.
Immediate refund of excess input VAT can be obtained in cases. (Subject to conditions)
For intra-Community acquisition of goods (except goods subject to excise duty) the trader does not pay VAT on receipt of the goods in Cyprus but instead accounts for VAT using the acquisition accounting method. This involves a simple accounting entry in the books of the business whereby it self-charges VAT and at the same time claims it back, provided it relates to taxable supplies thereby creating no cost to the business.
In cases where the acquisition relates to an exempt transaction, the trader must pay the VAT that corresponds to the acquisition.
As from 1 January 2010 significant changes come into effect in the EU and Cyprus VAT legislation in the following areas:
- Changes in the country of taxation of services provided between businesses established in two different EU Member States (B2B)
- Changes in the country of taxation of services, supplied to consumers (B2C)
- Changes in the time of supply of services for which VAT is due by the recipient
- Procedure for refund of VAT paid in another Member State (MS)
- Additional compliance obligation for electronic submission of the monthly VIES return for services subject to VAT in another EU Member State through the reverse charge provisions.
Registration
Registration is compulsory for businesses with (a) turnover in excess of €15.600 during the 12 preceding months or (b) an expected turnover in excess of €15.600 within the next 30 days. Businesses with turnover of less than €15.600 or with supplies that are outside the scope of VAT but for which the right to claim the amount of the related input VAT is granted, have the option to register on a voluntary basis.
An obligation for registration also arises for businesses which make acquisition of goods from other EU Member States in excess of €10.251,61 during any calendar year. In addition as from 1 January 2010 an obligation for VAT registration arises for businesses engaged in the supply of intra-Community services for which the recipient must account for VAT under the reverse charge provisions. Furthermore an obligation for VAT registration arises for businesses carrying out economic activities from the receipt of services from abroad for which an obligation to account for Cyprus VAT under the reverse charge provision exists. No registration threshold exists for either intra-Community supply of services or from receipt of services from abroad.
Exempted products and services, and disposals of items of capital nature are not taken into account for determining annual turnover for registration purposes. Registration is effected by completing the appropriate application form.
VAT rates
The legislation provides for the following four tax rates:
- Zero rate (0%)
- Reduced rate of five per cent (5%)
- Reduced rate of eight per cent (8% up to 12 January 2014 and 9% as from 13 January 2014)
- Standard rate of fifteen per cent (15% up to 29 February 2012, 17% as from March 2012 up to 13 January 2013, 18% as from 14 January 2013 up to 12 January 2014 and 19% as from 13 January 2014)
Certain goods or services are exempt from VAT. They include:
- The letting of immovable property (the letting of immovable property with the right of purchase is not exempt);
- Most banking and financial services and insurance services;
- Most hospital, medical and dental care services;
- Certain cultural educational and sports activities;
- Supplies of real estate (except supply of new buildings before their first use) including supplies of land and of second-hand buildings;
- Postal services provided by the national postal authority;
- Lottery tickets and betting coupons for football and horse racing;
- Management services provided to mutual funds.
The difference between zero rate and exempt supplies is that businesses that make exempt supplies are not entitled to recover the VAT charged on their purchases, expenses or imports.
Irrecoverable input VAT
As an exception to the general rule, input VAT cannot be recovered in a number of cases which include the following:
- acquisitions used for making exempt supplies;
- purchase, import or hire of saloon cars;
- entertainment and hospitality expenses (except those relating to employee and directors);
- Housing expenses of directors.
VAT declaration – Payment/return of VAT
VAT returns must be submitted electronically quarterly and the payment of the VAT must be made by the 10th day of the second month that follows the month in which the tax period ends.
VAT registered persons have the right to request for a different filing period. Approval of the VAT authorities is required. The VAT Commissioner also has the right to request from a taxable person to file his VAT returns for a different period.
Where in a quarter input tax is higher than output tax, the difference is refunded or is transferred to the next VAT quarters.