Gerard Associates Ltd. Financial Advisory Services does not provide individual tax advice, and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.
It is essential that all clients seek tax advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable to tax.
This has been prepared based on our understanding of current legislation and tax practice as at the date above. However, these are subject to change, and may result in income tax consequences different from those detailed below.
We cannot accept responsibility for its interpretation or any future changes to law.
Introduction
The Inland Revenue department of the Ministry of Finance controls tax in Cyprus. When Cyprus became a member of the EU in 2004, important features of the tax system were harmonised with EU law, but the tax system still has its roots in the British system. The country joined the Euro in January 2008.
Tax Year
1 st January – 31st December
Assessment Basis
Cypriot residents are taxed on their worldwide income. If a Cypriot resident is employed and only earning a wage they do not need to complete a self-assessment tax return. Married couples are taxed separately.
Income Tax
Cypriot residents are taxed on all income derived from employment, whether salary or benefits in kind, together with certain other types of income such as rental income. Taxable income is taxed at progressive rates. The rates range from 20% to 30% on taxable income in excess of €19,500. Tax on employment income is deducted at source by the individual’s employer.
Tax deductions up to one-sixth of taxable income are permitted on annual life insurance protection premiums, social insurance, some provident funds, pension contributions, some foreign funds and contributions to the Cypriot General Medical Fund. There are also some ‘social grants’ dependent on the size and make up of an individual’s family, such as progressive child benefits, blind person’s benefit and child-in-higher-education benefit. Recipients of a pension based on services rendered outside Cyprus may opt for a Special Rate of 5% on their pension income taxation in excess of €3,417 annually.
Taxation of Investment Income
There is no tax payable on dividend and interest income sourced in Cyprus. Instead, every Cypriot
resident pays a ‘special defence contribution’ on certain types of unearned income:
• Dividend income from local and overseas companies is subject to special contribution for defence at the flat rate of 15%. Any foreign tax withheld abroad is always credited against this Cyprus liability.
• Domestic and foreign-source interest income is taxed at a rate of 10% except for Government Issue savings bonds and development bonds which are taxed at a lower flat rate of 3%.
• Rental payments are subject to the defence contribution at a rate of 3%. Individuals with an annual income not exceeding €7,000 may apply for a refund of the tax paid in excess of 3%.
The ‘special defence contribution’ is generally withheld at source, except in the case of rental income
which is payable in two six-monthly instalments.
Tax on Property Rental Income
Income from rental property forms part of taxable income with a deduction for the first 20% of rental
income. The remaining 80% is added to taxable income and taxed at the highest marginal rate
applicable for each individual.
Rental income is also subject to the ‘special defence contribution’ at a rate of 3% which is computed on
the gross rental income less a 25% allowance. This is applicable to Cypriot residents only.
Premium Tax
A tax is applied to the gross premiums of all life companies at a minimum rate of 1.5% of gross premium income, and is payable by the policyholder.
Wealth Taxes
There are no wealth taxes in Cyprus.
Capital Gains Tax
Capital Gains Tax is imposed at the rate of 20% on gains from the disposal of immovable property situated in Cyprus, including gains from shares in companies that invest in immovable property, but excluding shares listed on a recognised stock exchange.
There are various exemptions available and capital losses can be used to offset gains. There are cumulative lifetime exemptions available for the disposal of a private residence (€85,430), disposal of owner-occupied agricultural land (€25,629) and any other disposals (€17,086).
Inheritance and Gift Tax
There is no Inheritance or Gift Tax in Cyprus. However, the executor/administrator of the estate of the deceased is required by law to submit to the tax authorities a statement of assets and liabilities of the deceased within six months from the date of death.
Regional and Municipal Taxes
In addition to the property tax listed below a further tax is levied by local authorities. Rates vary according to the size of property.
Property Taxes
Immovable Property Tax is imposed on the market value of the property as at 1st January 1980 and applies to the immovable property owned by the taxpayer on 1st January. The tax is payable by 30th September and it is not deductible for income tax purposes. Rates range from 0% on the first €170,860 to 0.4% on the excess over €854.300. There are various exemptions but these are generally for public buildings.
Stamp Duty/Transfer Tax
There is a transfer tax payable to the Department of Land and Surveys for transfers of immovable property. Progressive rates are applied to all transfers, starting at 3% and going up to 8%. Stamp Duty is applicable on various documents and the amount varies according to the type of document, and a ceiling of €17,086 applies.
Sales Tax
Sales tax is generally added at a standard rate of 15% to the sale price of goods and services. Some sales are exempt and other goods and services are subject to lower rates of 5% and 8%.
Social Security Contributions
Contributions to the Social Insurance Fund are paid by employees at a rate of 6.8% on gross salary up to €4,004 (2010) per month. Employers contribute 6.8% of gross salary. Self employed individuals pay contributions of 12.6%. The contributions provide for a number of social security benefits, the most important being pension on retirement and benefits upon sickness and disability, maternity, unemployment and industrial injuries.
A non-resident individual who has previously contributed to the Social Insurance Fund may pay a voluntary contribution to maintain benefits. This contribution is equal to 11% of the elected insurable amount.
Employers make further social security contributions of up to 2% in respect of the social cohesion fund.
Taxation of expatriates living in Cyprus
An individual is considered to be resident in Cyprus for tax purposes if they spend more than 183 days in any one tax year in Cyprus. Anyone who becomes resident in Cyprus for tax purposes is liable to taxation on their worldwide income at the rates described above.
If an individual is considered a tax resident of Cyprus, but is earning income from salaried services rendered abroad for more than 90 days in a tax year, the part of their salary earned abroad is exempt from tax. Such salaried services must be carried out for either:
- a non-Cypriot resident employer, or
- the foreign permanent establishment of a Cypriot resident employer.
Any individual taking up employment in Cyprus for the first time is given an extra tax allowance on their income for a period of three years commencing from 1st January following the date they commence employment. This allowance is the lower of 20% of income or €8,543 annually. Expatriates in receipt of foreign pension income may opt for the Special Rate of 5% taxation to be applied beyond the annual exemption limit of €3,417.
Cyprus has an extensive network of double taxation treaties with over 40 countries in respect of interest, dividends and royalties paid from and received in Cyprus. All employees, whether they are Cypriot or EU nationals, are subject to the social security system in Cyprus. EU nationals taking on employment in Cyprus may, however, apply for an exemption from the Cypriot social security system if they continue to make
contributions of such nature to their home country’s fund under EU regulation No. 1408/71. Non-EU nationals employed by Cypriot companies are not subject to the social security system in Cyprus provided the employer
company does not trade within Cyprus and they are not considered to have their ordinary residence in Cyprus.
Foreign employees working in Cyprus who are subject to the Cyprus Social Security system have to register with the Social Security authorities after they have obtained their Alien Registration Certificate (ARC).
Taxation of ‘Non-Residents’ Living in Cyprus
If an individual is deemed to be a non-resident of Cyprus for tax purposes they will only be taxed on certain types of their Cypriot sourced income. Such income would be employment income (including benefits) in relation to services rendered in Cyprus, profits from a business activity which is carried out through a permanent establishment in Cyprus, rentals from immoveable property situated in Cyprus, and pensions in respect of employment exercised in Cyprus. These incomes are subject to Cypriot income tax at the progressive rates applicable. Unearned income such as interest and dividends earned from Cyprus sources are exempt from
any income tax.
Non-residents are fully exempt from the ‘special contribution for defence’ on any income arising in Cyprus.
Cyprus has concluded social security agreements with a number of countries. These agreements provide the rules for determining which country's social security law is applicable to an individual connected with both countries. As a general rule employees working in one country are subject to the legislation of that country except in a number of cases which include temporary postings, government officials, international transport workers and mariners.
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