Cyprus tax: An overview of the taxation system in Cyprus

Cyprus (or “the Republic”) offers an overall attractive taxation system, having one of the lowest corporate tax rates in Europe. Moreover, as a full member of the European Union, Cyprus is committed to fairness, justice, and the rule of law. At the same time, the Cypriot system benefits from the expertise of the European Commission on finance, competition, and corporate governance. This page contains general guidance on Cyprus tax rules and indicates the general framework of the taxing system.

Contents

• General framework
• Individuals Resident in Cyprus
• Corporate Income Tax (CIT)
• Rental Income Taxed
• Special Contribution for Defense (SCD)
• Real Estate Taxes
• Value Added Tax (VAT)
• General Health System (GHS, Γεσυ)
• Payments of Tax

General framework

The Cyprus Income Tax Laws apply identically to individuals (physical persons) and companies (legal persons). According to Euraxess Cyprus (euraxess.org.cy), partnerships are not taxed as separate units: each partner is taxed according to income. Husband and wife are taxed separately. The tax year in Cyprus is the calendar year.

Individuals resident in Cyprus

A person is a resident of Cyprus for tax purposes if he/she remains in Cyprus:

• For more than 183 days during the tax year (the “183-day rule”); or,
• For more than 60 days, is not a tax resident anywhere else, has his or her permanent home in the Republic, and does business in the Republic (the “60-day rule”).

Taxable Income

A person who earns more than 19,500 euros per year pays income tax. Personal income tax (PIT) rates apply; for example, between 19,501 to 28,000 euro income, the rate is 20%.

Types of Income Taxed

Tax is charged on income from employment, trade, rent, profits from property, pensions, annuities. Artists or sports personalities from abroad pay 10% tax on the income that is coming from Cyprus.

High earners moving to Cyprus

A high earner is a person who earns more than 100,000 euros per year. A high-earning person moving to Cyprus will get a 50% deduction for the first ten years.

Self-employment

Self-employed persons pay 15.6% of their income for social security (some limits apply, set annually). The tax due must be estimated by 31st July each year, and tax is paid in two equal installments on 31/7 and 31/12. If a self-employed person earns more than 70,000 a year, he/she must submit audited financial statements.

Employers and employees

Employer and employee each contribute an 8.3% for social security. This rate will change on 31st December 2023; a percentage of 8.8% will then apply.

Other details

• Dividends are exempted from income tax.
• Rental income is taxed at 20%.
• There is no income tax for a retirement bonus.

Corporate income tax (CIT)

Companies should file annual tax returns. These are prepared using audited financial statements. The deadline to file an annual return is 31st December.

Rate

Cyprus provides one of the lowest corporate income tax rates in Europe. The standard rate is 12.5% on the company’s worldwide income, from sources both outside and from within Cyprus. There are exceptions to corporate income tax, such as income from dividends and profit from the sale of securities.

When is a company taxed in Cyprus?

• A company is taxed in Cyprus if managed and controlled in Cyprus (the so-called “real seat theory”).
• Suppose a company is not a tax resident of Cyprus. In that case, it will be taxed on income coming from sources in Cyprus and on income from a business activity carried out through a permanent establishment (PE) that is in Cyprus. According to Bloomberg Tax & Accounting, a PE is defined as a “fixed place of business” and includes a place of management, an office/branch, factory, workshop, mine, oil or gas well, quarry, and generally any natural resources extraction unit.

Rental income taxed

Tax residents will need to pay tax on their rental income. For individuals (physical persons) the rate is between 20% to 30%. For companies (legal persons) the rate is 12.5%. A Special Contribution for Defense is charged on rental income; for both individuals and companies, the rate is 3% on 80% of the rental income.

As of January 2021, 20% of gross rental income is deducted from tax.

Special contribution for defense (SCD)

A special contribution for the defense applies to certain income types, such as income from dividends, interest income, and rental income. The rate is 17%.

Individuals pay SCD if they are both Cyprus tax residents and Cyprus domiciled. Cyprus domiciled means one of two things. Either that, first, they have a domicile (a home) from birth in Cyprus. Or they have got and retained a home in Cyprus (as per the Wills and Succession Laws); or, second, they have been tax residents of Cyprus for 17 out of 20 tax years before the year in question.

Companies pay SCD if they are tax residents of Cyprus.

Non-tax residents do not pay SCD.

Real estate taxes

The real estate tax was abolished on 1st January 2017. Now real estate taxes are charged by the municipality in the form of an annual municipality tax. The amount depends on the value of the property, while rates may vary according to location. A community (local authority) charge will also apply.

Transfer of Land/ Buildings

Transfer fees may be charged depending on the value of the land. There would be no transfer fee if VAT was charged when buying the land. VAT is charged on new properties at a rate of 19%, unless the building permit for the new property was granted before 1st May 2004.

Value-added tax (VAT)

Companies earning more than 15,600 euro for the last twelve months must be VAT registered. Self-employed must also be VAT registered and will be subject to VAT rules and regulations. VAT is payable electronically four times a year.

General health system (GHS, Γεσυ)

According to gesy.org, from 1st March 2020, employees and pensioners will contribute 2.65% of their monthly income to the GHS. Employers will pay 2.90% to GHS on each employee’s salary. Self-employed individuals will contribute 4%.

Payments of tax

Registration for income tax is required (form T.D. 2001) and form T.D. 1101 for VAT registration (if applicable). Then the individual or company will receive a Tax Identification Code (TIC) and a VAT registration certificate (if applicable). All the forms to be filled are available at mof.gov.cy.

Our Tax Services

Our tax and legal departments offer the below:

For companies:

• General Tax Advice
• Review and advice on company’s tax position
• Assist in filing of tax returns
• Cooperate with Cyprus Tax Department for any issues
• Obtaining Cyprus Tax certificate
• Ensuring your company is fully compliant with tax regulations and deadlines

For Individuals:

• Preparation and submission of tax returns
• Advice on Income Tax, Inheritance Tax, and Capital Gains Tax
• Inform you of the deadlines and amounts involved for your tax payments