Tax in Cyprus

Residents are taxed on their worldwide profits or other benefits from a business, profits or other benefits from an office or employment, dividends, interest or discounts, pensions and any rental income arising from immovable property. Non-residents are taxed only on their Cyprus-source income from employment exercised in Cyprus, a permanent establishment in Cyprus, rental of immovable property located in Cyprus and pensions from employment exercised in Cyprus.

An individual is resident in Cyprus if they are present in Cyprus for an aggregate of more than 183 days in any calendar year. The definition of tax resident also includes an individual who does not stay in any other state for one or more periods exceeding in aggregate 183 days in the same tax year and who is not considered a resident for tax purposes in any other state in the same tax year, provided that the individual meets all of the following criteria:

• they stay in Cyprus for at least 60 days in the tax year.
• they exercise any business in Cyprus and/or is employed in Cyprus and/or holds an office for a person tax resident in Cyprus at any time during the tax year
• they maintain a permanent residence in Cyprus that is owned or rented by him or her

Employment income - For an individual tax resident of Cyprus, tax is levied on all gains or profits from any office or employment exercised in Cyprus or abroad. Foreign-source income from employment is not taxed if the recipient spends at least 90 days in any calendar year outside Cyprus. This is known as the “90-day rule.”

For an individual who is a non-tax resident of Cyprus, tax is levied on gains or profits from any office or employment exercised in Cyprus only.

Taxable income from employment includes the estimated value of any accommodation and other allowances from employment, whether paid in cash or in kind (for example, the private use of a saloon car [a sedan]).

Non-residents of Cyprus who take up employment in Cyprus may deduct the lower of 20% of their salary or EUR8,550. This deduction applies for a period of five years beginning from 1 January of the year following the year of beginning of employment (provided the employment began during or after 2012). This deduction applies to tax years up to 2020.

Non-residents of Cyprus who take up employment in Cyprus after 1 January 2012 and have remuneration of more than EUR100,000 may be allowed a 50% deduction from their employment income. This deduction applies for the first 10 years of employment. The 50% deduction is not available to individuals who began their employment on or after 1 January 2015 and meet one of the following conditions:

• they were tax residents of Cyprus for a period of three of the five years preceding the year of beginning of employment
• they were tax residents of Cyprus in the year preceding the year of beginning of employment

The Tax Department allows only one of the above two deductions.

Pensions received by residents for employment exercised outside Cyprus may be taxed at a special tax rate of 5% for amounts exceeding EUR3,420.

Self-employment and business income - Residents are subject to income tax on self-employment income. Non-residents are subject to income tax on self-employment income received from the carrying on of a business in Cyprus. Gross income derived from Cyprus by non-resident professionals, artists, athletes and entertainers is subject to 10% final withholding tax.

Directors’ fees - Directors’ fees are considered compensation and are taxed in the same manner as income from employment.

Investment income - Dividends and interest received are exempt from income tax. Dividends received by resident individuals who are considered to be domiciled in Cyprus are subject to a Defence Fund tax at a rate of 17%. Interest received by resident individuals who are considered to be domiciled in Cyprus is subject to a Defence Fund tax at a rate of 30%.

Profit from the sale of securities is exempt from income tax both for individuals and legal persons.

Withholding tax is not imposed on dividends and interest paid to non-residents. Royalties and premiums derived from Cyprus by non-residents from sources within Cyprus are subject to a 10% withholding tax. Income received by non-residents from film rentals is subject to a 5% withholding tax. Withholding taxes on income paid to non-residents are final taxes.

Capital Gains Tax is imposed at a rate of 20% on profits from the disposal of the following:

• immovable property located in Cyprus
• shares of companies that own immovable property located in Cyprus
• shares of companies that either directly or indirectly participate in a company or companies that own immovable property located in Cyprus if at least 50% of the market value of such shares is derived from the relevant property

The disposal of shares listed on a recognized stock exchange is exempt from Capital Gains Tax.

The gain is the difference between the sale proceeds and the original cost of the property, adjusted for increases in the cost of living index. No other assets are subject to capital gains tax.

There are various lifetime exemptions from tax on capital gains derived from property sales, available to individuals and therefore advice should be taken as needed. Losses may also be deductible if utilised within five years.

Cyprus does not impose estate tax or gift tax.

Under the Cypriot Social Insurance Scheme, contributions to the Social Insurance Fund are made monthly on the gross emoluments of each employee. As of 1 January 2019, employers and employees must make equal social security contributions at a rate of 8.3% on monthly compensation up to the maximum monthly insurable amount, which is currently EUR4,572 (yearly maximum insurable amount of EUR54,864). The employer is responsible for payment of both contributions.

Self-employed individuals must contribute to the social security scheme at a rate of 15.6% on monthly income. Minimum and maximum monthly incomes of self-employed individuals are classified according to the type of business, profession or vocation.

Foreign nationals working in Cyprus must contribute to the Cyprus social security system unless they meet specific criteria.

The General Healthcare System (GHS) is applicable as of 1 March 2019 (Phase A). Based on the provisions of the GHS law, employers must withhold from their employees’ salaries relevant contributions and remit these together with their contributions to the social insurance department. In addition, the law provides that persons who are making interest, dividend or rental payments to individuals are also obliged (conditionally) to make a withholding with respect to GHS contributions and remit these contributions to the Tax Department. GHS contributions are made at various rates depending on an individual’s circumstances and were increased from March 2020 onwards.

Each individual who is considered to be an employee and has taxable income must notify the Commissioner of Income Tax through the electronic submission of a tax return no later than 31 July of the year following the tax year.

Employment income is taxed on a Pay-As-You-Earn (PAYE) basis. The employer withholds PAYE from employees’ salaries on a monthly basis.

Each individual who is considered to be self-employed but has no obligation to submit audited financial statements (on the basis that the individual has turnover of less than EUR70,000), must file electronically a personal tax return by 30 September of the year following the tax year. The final personal tax of an individual must be settled by 30 June of the year following the tax year.

Self-employed individuals preparing audited financial statements must submit electronically their personal tax return within 15 months after the end of the tax year (that is, the 2019 tax return should be filed electronically by 31 March 2021). The final tax for self-employed individuals preparing audited financial statements is due by 1 August of the year following the tax year.

Resident and non-resident individuals whose gross income does not exceed EUR19,500 are not required to file tax returns.

Residents are entitled to a credit for foreign taxes paid, up to the amount of Cyprus tax payable on the same income, regardless of whether a tax treaty applies.

Cyprus has entered into double tax treaties with 63 countries.