Under Cyprus tax legislation, Cyprus tax resident individuals are taxed on all chargeable income accrued or derived from all sources in Cyprus and abroad. An individual who is not a tax resident in Cyprus, is taxed on income accruing or arising only from sources within the Republic. Foreign taxes paid can be credited against the personal income tax liability.
When deciding whether to become a tax resident of Cyprus, an investor should take into consideration the following forms of taxation, and their respective applicability:
- Personal Income Tax
- Special Contribution for Defense
- Capital Gain Tax
- Immovable Property Tax
Personal Income Tax
The following income tax rates apply to individuals:
|Chargeable income for the tax year
|From 19.501 – to 28.000||20||1.700|
|From 28.001 – to 36.300||25||3.775|
|From 36.301 – to 60.000||30||10.885|
Exemptions from taxation:
- Interest, except for interest arising from the ordinary business activities or closely related to the ordinary business activities of an individual
- Dividends (may be subject to Special Defense Contribution)
- Remuneration from salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus resident employer or to a foreign permanent establishment of a Cyprus resident employer
- Profits of a permanent establishment abroad under certain conditions
- Lump sum received by way of retiring gratuity, commutation of pension or compensation for death or injuries
- Profits from the sale of securities and titles (shares, bonds, debentures, etc.)
- 20% of the emoluments or EUR8,550 (whichever is lower) from any employment which is exercised in Cyprus by an expatriate who was not a tax resident of Cyprus prior to commencing employment in Cyprus, are exempt from tax. This exemption applies for a period of 5 years commencing from 1 January of the year following the year of commencement of such employment.
- Expatriates who take up residence in Cyprus (and have not been Cyprus resident for at least 3 out of the last 5 years) with an annual income in excess of EUR100.000 will be eligible for an exemption from taxation of 50% of their income for a period of 10 years. Please note that this is not cumulative with the expatriate exemption described above (i.e. EUR8,550 or 20% for three years)
Special Contribution for Defense (“SDC”)
Special Contribution for Defense (SDC) is imposed on dividend income, ‘passive’ interest income and ‘passive’ rental income earned by Cyprus tax residents. Non-Cyprus tax residents are exempt from SDC. SDC is charged at the rates shown below:
|Individuals (%)||Legal entities (%)|
|Dividend income from Cyprus tax resident companies||17||nil|
|Dividend income from non-Cyprus tax resident companies||17||nil|
|Interest income arising from the ordinary activities or closely|
|related to the ordinary activities of the business||nil||nil|
|Other interest income||30||30|
|Rental income (reduced by 25%)||3||3|
Following a recent amendment of the SDC legislation, Cyprus non-domiciled tax resident individuals (see our “July 2015 – Cyprus Non Domiciled Residents” memo for more details), are exempt from SDC.
Capital Gains Tax
Capital Gains Tax is imposed (when the disposal is not subject to income tax) at the rate of 20% on gains from the disposal of immovable property situated in Cyprus including gains from the disposal of shares in companies which own, directly or indirectly, such immovable property (but excluding shares listed on any recognised stock exchange).
As from July 2015, a provision on the Capital Gains Taxation law has been enacted, providing an exemption from capital gains taxation for all immovable property acquired from 16 July 2015 (the date of publication of the said amendment in the government gazette) until 31 December 2016.
Immovable Property Tax
Immovable Property Tax is tax imposed annually on the market value of immovable property located in Cyprus. The taxation is based on the market values of immovable property as at 1st January 1980, and applies to the immovable property owned by the taxpayer on 1 January of each year. This tax is payable on 30 September each year. Physical and legal persons are both liable to Immovable Property Tax.
As from 1 January 2013, the bands and rates for Immovable Property Tax are as outlined in the table below:
|Property value (as at 1 January 1980)||Rate||Accumulated tax|
|From 40.001 – to 120.000||8||880|
|From 120.001– to 170.000||9||1.330|
|From 170.001– to 300.000||11||2.760|
|From 300.001– to 500.000||13||5.360|
|From 500.001– to 800.000||15||9.860|
|From 800.001- to 3.000.000||17||47.260|
Property owners whose property has a total value of €12.500 or less (using values of 1.1.1980) are exempt from Immovable Property Tax.
It is expected that Immovable Property Tax legislation will be modernized and will be based on a flat rate on current market values. This is still pending a general property revaluation exercise undertaken by the District Land Offices in cooperation with the Tax Department.