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Tax

i Introduction

Cyprus offers a benign personal tax system, with generous allowances and a top rate of 35 per cent on taxable income in excess of €60,000. Passive interest and dividends are exempt from income tax. A special defence contribution (SDC) tax is payable on interest, dividends and rents received by individuals if they are both resident and domiciled in Cyprus (see below); individuals who are resident but not domiciled in Cyprus are not liable to SDC. There are no succession taxes, and all capital gains, apart from those deriving from the disposal of real estate located in Cyprus, are exempt from taxation.

ii Personal income tax

The tax year is the calendar year and individuals are considered resident if they are present in Cyprus for more than 183 days in the relevant year. In addition, with effect from 1 January 2017, individuals who meet all the following conditions in respect of a given tax year will also be deemed to be tax-resident in Cyprus if:

  1. they are physically present in Cyprus for one or more periods amounting to at least 60 days;
  2. they are not tax-resident in another country;
  3. they undertake business in Cyprus, have employment in Cyprus or hold a post in a Cyprus-resident company that continues to the end of the tax year; and
  4. they maintain a permanent residence at their disposal for their use in Cyprus.

Individuals who satisfy the criteria may obtain a tax residence certificate by completing the prescribed form (T.126 (2017)) and submitting it to the Tax Department together with evidence of arrival and departure in Cyprus, property title deeds or lease contract, and evidence of employment.

Cyprus residents are taxed on the basis of worldwide income irrespective of whether it is remitted to Cyprus. Husbands and wives are taxed separately. Persons who are not resident in Cyprus are subject to income tax on income accruing or arising from sources in Cyprus.

Personal income tax rates are as follows:

Income bandTax rate (%)Cumulative tax at top of band
€0–€19,500ZeroZero
€19,500–€28,00020€1,700
€28,000–€36,30025€3,775
€36,300–€60,00030€10,885
€60,000 and above35

Relief is given for donations to approved charities, professional and trade union subscriptions, life insurance premiums and contributions to pension, social insurance and welfare funds. Relief may also be available under a double taxation treaty.

Resident expatriate employees or secondees are subject to income tax on their worldwide income at the rates shown in the table above.

For tax years up to and including 2012, individuals becoming tax-resident and taking up employment in Cyprus were entitled to an exemption of 20 per cent of their annual income from employment in Cyprus or €8,550 per annum for the first five years of their employment in Cyprus. With effect from the 2020 tax year, the exemption has been extended and will be available until 2025.

In 2012, another exemption was introduced for highly paid individuals, exempting 50 per cent of the first five years' income from employment in Cyprus of a person who was not previously resident in Cyprus, provided the income from employment in Cyprus exceeds €100,000 per annum. With effect from the 2015 tax year, the exemption period of five years was extended to 10 years. In respect of employments beginning on or after 1 January 2015, the exemption is not available to anyone who was resident in Cyprus in any three of the five tax years preceding the year in which the employment in Cyprus began, or to anyone who was resident in Cyprus in the year preceding the year in which the employment began.

The exemption is available in respect of any tax year in which income from employment exceeds €100,000, irrespective of whether the income falls below that amount in any intermediate year, provided that when the employment started the income exceeded €100,000 and the tax authorities are satisfied that the variations in the annual income are not made for the purpose of obtaining this tax benefit.

The two exemptions are mutually exclusive and each taxpayer may only claim one.

Exemptions and special cases

The following are exempt from income tax:

  1. passive interest and dividends receivable by individuals (these are subject to SDC tax unless the individual is not domiciled in Cyprus: see below);
  2. lump sums received on retirement;
  3. profit from the sale of shares;
  4. capital sums from approved life assurance policies and provident or pension funds;
  5. income from employment services provided abroad to a non-resident employer or an overseas permanent establishment of a resident employer for a period exceeding 90 days but less than 183 days in the tax year;
  6. salaries of officers and crew of ships owned by a Cyprus shipping company that sail under the Cyprus flag and operate in international waters; and
  7. income from a qualifying scholarship, exhibition, bursary or similar educational endowment.

For income tax purposes, a 20 per cent deduction is allowed from rental income received. The individual is also entitled to claim capital allowances on the cost of acquisition of the asset (provided that the asset is not more than 33 years old) and interest expense on loans undertaken to finance specifically the acquisition of the relevant property.

The first €3,420 per annum of any foreign pension is free of tax, and the excess over that amount is taxed at 5 per cent, assuming that it is taxable under the special manner of taxation. The individual has the option to be taxed under normal income tax rates for a pension received from abroad.

Special defence contribution tax

Special defence contribution (SDC) tax is payable by individuals who are both resident and domiciled in Cyprus on interest, dividends and rentals received at the rates set out below. Individuals who are resident but not domiciled in Cyprus enjoy a full exemption from SDC on all investment income generated on a worldwide basis. Residence is determined in the same way as for income tax purposes.

The principles set out in the Wills and Succession Law, Cap 195 (WSL), which follow the principles of English common law, are used to determine domicile. In summary, an individual acquires a domicile of origin at birth. It is generally the same as the domicile of the father at the time of birth, and in exceptional cases that of the mother. A domicile of origin may be replaced by a domicile of choice if in actual fact an individual permanently establishes himself or herself in another country with the intention of living there permanently and dying there. However, an individual will be deemed to be domiciled in Cyprus if he or she has been a tax resident for 17 or more of the 20 tax years immediately preceding the year of assessment.

Taken together with the income tax exemption, this means that an individual who is not domiciled in Cyprus is exempted from all Cyprus taxation on passive interest and dividends from all sources and a special defence contribution on rental income.

Relief or credit for tax paid abroad may be available either under the terms of a double tax treaty or by way of unilateral relief.

Type of incomeRate
Dividends17%*
Interest30%
Rents3% of 75% of the rent
*3% on dividends paid by collective investment schemes
iii Capital gains tax

There is no taxation of capital gains in Cyprus apart from gains made on the disposal of real estate located in Cyprus or on the shares of companies directly or indirectly holding real estate in Cyprus (in which case the taxable gain is the gain attributable to the real estate holding). To stimulate the real estate market, an exemption was introduced for immovable property acquired between 16 July 2015 and the end of 2016, provided that the property was acquired on an arm's-length basis and not under the foreclosure provisions of the Transfer and Mortgage of Immovable Properties Law of 1965 (L 9/1965). Any gain on the disposal of the property will be exempt from capital gains tax, irrespective of the date of disposal.

As an added incentive, the normal transfer fees payable to the Department of Lands and Surveys on acquisitions of immovable property were discounted to 50 per cent of the standard rate until the end of 2016, provided that the property was acquired on an arm's-length basis and not under the foreclosure provisions of the Transfer and Mortgage of Immovable Properties Law of 1965.2 Alternatively, if value added tax (VAT) is payable on the purchase of the property, no transfer fee is payable at all, provided that the sale agreement was deposited with the Land Registry by 31 December 2016. In July 2016, the reduction in transfer fees was made permanent by the Lands and Surveys Department (Fees and Rights) (Amendment) (No. 2) Law (81(l)/2016).

iv Succession taxes

There are no succession taxes in Cyprus.