An in-depth view of Taxation in Cyprus

As a hub for international business, Cyprus has long been known for its favorable tax regime. Cyprus offers low tax rates, a wide network of tax treaties, and other incentives to attract foreign investors. In this article, we will take an in-depth view of taxation in Cyprus, exploring its different types of taxes, tax rates, and tax incentives.

Types of Taxes in Cyprus

There are several types of taxes in Cyprus that individuals and businesses must pay. These include:

1. Corporate Income Tax: This tax applies to the profits of companies operating in Cyprus, whether they are based in Cyprus or abroad. The standard rate of corporate income tax in Cyprus is 12.5%, which is one of the lowest in Europe. There are also certain exemptions and deductions available to companies, which can reduce their taxable income.
2. Personal Income Tax: This tax applies to the income of individuals who are resident in Cyprus. The tax rates for personal income tax in Cyprus are progressive, with higher earners paying a higher percentage of their income in tax. The top rate of personal income tax in Cyprus is 35%.
3. Value Added Tax (VAT): This tax is applied to the sale of goods and services in Cyprus. The standard rate of VAT in Cyprus is 19%, but there are also reduced rates of 5% and 9% for certain goods and services.
4. Capital Gains Tax: This tax applies to the profit made from the sale of assets such as property, stocks, and shares. The rate of capital gains tax in Cyprus is 20%, although there are certain exemptions and deductions available.
5. Property Taxes: There are several property taxes in Cyprus, including municipal taxes, stamp duty, and capital transfer tax.

Taxes on Corporate Income

Cyprus tax-resident companies are taxed on their income from all sources in the country and abroad. The standard corporate income tax, or CIT, is 12.5%. Non-Cyprus tax resident companies are exempt from CIT tax.

Value-Added Tax Rates

The value-added tax, or VAT, is charged on the supply of services and goods in Cyprus, the importation of goods into Cyprus, and the acquisition of goods from the EU. The standard VAT rate is 19%.

Personal Income Tax Rates

Cyprus-tax residents must pay general and foreign taxes on their income worldwide at tax rates ranging from 20—35%, depending on their annual income. If your annual taxable income amounts to €19,500 or less, you are exempt from this tax.

Here is a table of the personal income tax tiers in Cyprus:

Cyprus has a special regime for retirees, with a tax rate of 5% on pension payments exceeding €3,420 per month. The Defense Tax, or Special Tax Contribution for Defense Purposes, applies to dividends, interest income, and capital gains from the sale of securities and corporate rights. Non-domicile tax residents are exempt from paying this tax.

60 days – A foreigner can stay in Cyprus to be a tax resident

The 60-day rule provides for five requirements: 

• Do not reside in any other country longer than 183 days.
• Not to be a tax resident of other states during the tax period.
• To carry out any activity in Cyprus, for example, to have a job in Cypriot companies. 
• Own or rent residential real estate in Cyprus.
• Stay for at least 60 days in Cyprus.

Cyprus provides its citizens and expatriates with excellent taxation policies and incentives. To be a tax resident, foreigners can have permanent residence by investing in real estate or funds.

A person who is a non-tax resident is only taxed on income arising from sources in Cyprus. A company can be considered a tax resident when managed or controlled from Cyprus.

Special Contribution to Defense

The Defense Tax, or Special Tax Contribution for Defense Purposes, consists of three parts:

• A tax on dividends received in Cyprus and abroad;
• A tax that consists of interest income earned in Cyprus and abroad;
• Capital gains from the sale of securities and corporate rights.

A non-domicile tax resident is exempt from paying defense tax.

Tax exemptions for non-Cyprus residents 

Cyprus’ taxation system offers numerous exemptions and benefits for non-residents on capital gains, employment income, VAT exemptions, and many others. 

For example, non-Cyprus residents are exempt from tax on interest, dividends, and royalties in the whole amount. Non-residents are also exempt from income taxes on the sale of securities and capital sums accrued to individuals due to any payments to approved funds.

Tax calendar

You can check a tax calendar to pay all taxes on time, be up-to-date, and avoid paying unnecessary penalties. 

Tax due dates for individuals and companies

Date Requirements:

January 31st – Submission of the Deemed Dividend Distribution declaration

April 30th – Provide payment of premium tax forlife insurance companies

May 31st – Employees must provide electronic submission oftherevenue for the previous year

June 30th – Pay for Special Contribution for Defence and General Health Contribution for the first six months of the year on rents

July 31st – Provide electronic submission of the previous year on personal tax return

August 1st – Companies and individuals submitting audited financial statements should pay the tax balance for the previous year

December 31st – Pay for a Special Contribution forDefence and General Health Contribution on interest, rental, or dividend income

End of each month – Pay for Social Insurance and General Healthcare Contributions withheld from employees’ emoluments during the last month

Pay tax withheld in the previous month on payments to tax residents who are not citizens of Cyprus within the previous month

By the 10th of the second month following the end of the quarter – Self-employed individuals must submit and pay fortheir Social Insurance Contributions

By the 10th of the second month aftertheend of the VAT period  – Submit VAT declarations and payment of VAT amount due 

By the 10th of the month following the end of the VAT period – Submit Intrastat form, or Intra-EU Trade Statistics, electronically

Valid double taxation treaties

Cyprus has double tax treaties with more than 50 countries. Most of these countries follow the OECD Model Convention, but a tax treaty with the United States is also adapted to the US Agreements. 

Complete list of countries that have double taxation with Cyprus:

Conclusion

In conclusion, Cyprus offers a favorable tax regime for both individuals and businesses, with low tax rates, exemptions, and incentives. The tax system is straightforward, and there are clear rules for becoming a tax resident. The 60-day rule has made it easier for foreigners to become tax residents of Cyprus.