How Individuals are taxed in Cyprus?
Individuals who are tax residents in the Republic of Cyprus are taxed on income earned or derived both within and outside the Republic. An individual who is not a tax resident in the Republic is only taxed on income earned or derived within the Republic. Individuals employed in Cyprus must pay taxes on all payment they receive as remuneration, including bonuses and other benefits.
There are several significant exemptions available. Also Cyprus is one of the most favorable jurisdictions for foreigners because of the Non-Domiciled Rules in Cyprus. If you considering Moving to Cyprus it’s the perfect place to relocate, because it offers a lot of business incentives for high net worth individuals and entrepreneurs, but also a safe and quiet environment with a warm climate for your family to enjoy.
Who is considered a Cyprus Tax Resident?
A tax resident of the Republic of Cyprus is someone who spends more than 183 days in the country. An individual can be a tax resident of the Republic even though he or she spends less than 183 days in Cyprus if all of the following requirements are met during the same tax year (calendar year). This exemption is also known ad 60-day Cyprus Tax Residency Rule and the requirements are:
- Does not stay in any other nation for longer than 183 days;
- Is not considered a tax resident somewhere else in the world, in any other Country
- Spends at least 60 days in Cyprus (including the day he arrives and day he leaves);
- Owns or rents a permanent home in the Republic;
- Carries on a business, is employed in the Republic, or holds an office in the Republic at any time during the tax year.
The following table refers to Personal Income Tax rates applicable to individuals in Cyprus (exemptions may apply).
Which expenses are Deductible for Personal Income Tax purposes in Cyprus?
In general, expenditure paid solely for the purpose of generating taxable revenue is deductible against the individual’s income. Invoices and related receipts or other supporting papers should be provided to justify such expenditure. More specifically the Law allows for the following deductions for the Perσonal Income for Tax purposes:
- Interest on the purchase of assets utilized in the business (The whole amount)
- Expenses for letting of buildings (20% of the gross rental income)
- Interest in the purchase of a building for rental purposes (The whole amount)
- Subscriptions paid to professional organizations and trade unions (The whole amount)
- Contributions or Donations to official charity organizations (The whole amount)
- Donations to local political parties (up to €50,000)
- Expenses for scientific research purposes (The whole amount)
- Investments in cinema infrastructure and technology tools (Up to 20%)
- Life & Health Insurance (The Whole Amount)
- Personal saving plan or pension plans
- Social insurance contributions
- General Health System Contributions
– Annual Depreciation of Assets
Also known as “wear and tear” allowances, refers to individuals owning a business in Cyprus, can deduct from their personal taxable income, depreciation of their assets used in their business. Some examples of what those assets can be are: loading vehicles, fork lifts, personal computers, application software, machinery, video cameras, furniture, tools, yachts, solar systems, airplanes etc.
– Looses carried forward
People who own a business may carry forward tax losses made during a tax year for five years to offset taxable income. Any unutilized tax losses can be transferred to the new company when a person, including a partnership, changes a firm into a limited liability company. Individuals employed in Cyprus must pay taxes on all payment they receive as remuneration, including bonuses and other benefits. There are several significant exemptions available.
Types of Personal Income
The following information refers only to Domiciled Individuals, Tax Residents in Cyprus.
SELF-EMPLOYED INCOME
Any profits arising from self-employment in Cyprus, are subject to Personal Income Tax Rates as indicated above. From our experience, registering as a Self-Employed Individual in Cyprus, may not be the best solution for you. Setting up a Limited Liability Company in Cyprus may reduce your taxes significantly. The main two disadvantages of Self-Employed Individuals, is the obligation to pay the Social Security Contribution and the General Health System Contribution.
Employees’ personal payment to the state-administered social insurance fund is 8.3% of their gross income as of 1 January 2019, with a maximum annual ceiling on insurable emoluments of EUR 60,060 as of 1 January 2023. The 8.3% rate applies to both employees and employers until December 31, 2023. Following that, the rate will rise by 0.5% every five years until it hits 10.3% on January 1, 2039.
According to the General Health System Law of 2001 (89(I)/2001) as revised in 2017, a GHS is implemented in Cyprus with the goal of providing the public with equitable access to a comprehensive health care system. Individuals will have the choice of choosing a health care provider from both the commercial and governmental sectors. The GHS contribution for Self-Employed Individuals in Cyprus is 4% on their Income.
Combined these obligations with the personal tax income rates, will occur to significant looses of your self-employed income.
CAPITAL GAINS TAX (CGT)
CGT applies exclusively to gains on immovable property in Cyprus where the sale is not subject to income tax.
Sale, exchange, leasing, gifting, renouncing use of right, granting right to purchase, and any payments received upon cancellation of disposals are all considered disposals for CGT purposes. Gains originating from the sale of immovable property in Cyprus or shares in firms that directly possess immovable property in Cyprus are subject to CGT at the rate of 20%. CGT is also levied on the sale of shares of firms that indirectly possess immovable property in Cyprus, if at least 50% of the market value of the shares is derived from immovable property in Cyprus. CGT does not apply on the disposal of shares listed on any recognized stock exchange.
In the case of the disposal of company shares, the gain is computed only on the basis of the gain pertaining to immovable property located in Cyprus. The market value of the immovable property at the time the shares were disposed of will be used to determine its worth.
DIVIDEND PERSONAL TAX
Individuals’ dividend income is free from Taxation but subject to Special Defense Contribution (SDC), which is levied at flat rate of 17% on dividend.
Individuals are liable to SDC only if they are both Cyprus tax residents and Cyprus domiciled for SDC purposes as of 16 July 2015.
INTEREST INCOME TAX
Individuals’ interest income is exempted from Taxation but is subject to Special Defense Contribution (SDC), which is levied at flat rate of 30% on Interest Income.
RENTAL INCOME TAX
Gross rental income is subject to Taxation under the regular Tax Rates mentioned on the table above, minus a presumed deduction of 20% for structures (in place of real building repairs and related maintenance expenditures), a deduction for capital allowances for buildings, and interest expense for the acquisition of the building/land.
SDC is also levied on gross rental revenue (before deductions) at a rate of 2.25%. Individuals are liable to SDC only if they are both Cyprus tax residents and Cyprus domiciled for SDC purposes as of 16 July 2015.
Tax Exemption for Individuals
- First 19,500 EUR are fully exempted from Personal Income Tax in Cyprus
- Those who were not a resident of Cyprus for at least 10 consecutive tax years immediately previous to the commencement of their work in Cyprus are eligible for a 50% compensation exemption beginning on January 1, 2022, with remuneration exceeding EUR 55.000 per year. The exemption will be available to each individual once in their lifetime for a duration of 17 years.
- Tax exemption of 100% for pay obtained from work outside Cyprus for more than 90 days in a tax year for a non-Cyprus tax resident employer.
- Earnings from a foreign PE are totally tax exempted under specific conditions.
- Earnings from the sale of corporate “titles” are completely free from personal taxation.
- The following Government Aid is fully exempted from taxes: a)Families get a stipend for each kid who attends full-time higher education in Cyprus or abroad b) Financial support for each dependent kid of a Cyprus-based household. c) Financial aid for blind people.
- A lump payment received as a retiring gratuity, pension modification, or compensation for death or injury is completely free from taxation
- First sale of Immovable Property is not liable to VAT charge.
Individual Tax Returns
ndividuals should all register online and file their tax forms electronically. The following are the deadlines for electronic submission of income tax returns: Employees and pensioners have till July 31st of the following year.
Self-employed people with an annual revenue of less than EUR 70,000 who are not required to file audited financial statements: 31 July of the following year.
For self-employed people with an annual revenue of more than EUR 70,000: 1 March of the following year.
Please keep in mind that submission dates may change as a result of Cyprus’s economic reaction to COVID-19. It is advised that taxpayers keep an eye on developments.
Our Services
- Legal Advice on any Tax Related issues
- Company Registration in Cyprus
- Immigration Services in Cyprus
- Tax Residency Applications
- Opening of Bank Accounts
- Registration as an Employer or Self-Employed
- Litigation on Tax Matters
- Submission of Income Tax Returns