| Cyprus Income Tax Cyprus personal tax rates for 2009 are progressive, up to 30%. The following income tax rates apply to individuals in Cyprus:
Taxable Income € / Tax Rate % / Tax € / Accumulated Tax €
€0 - 19,500 Nil Nil
€19,501 - 28,000 20% €1,700 €1,700
€28,001 - 36,300 25% €2,075 €3,775
Over €36,300 30%
Foreign pension is taxed separately in Cyprus at the rate of 5% and an annual exemption of €3,417 is granted.
A person may elect in any year to have his/her pension included in his/her chargeable income so as to utilize personal allowances. This would lead to a tax saving where the chargeable income including the pension is less than €25,000.
In the case of an individual taking up employment in the Republic, who was non-resident prior to his employment, an allowance of 20% of his remuneration to a maximum of EUR 8,543 is given for a period of three years.
Salaried services rendered abroad for a total period of more than 90 days to a non-resident employer or at a PE abroad of a resident employer are exempt from income tax.
Cyprus income tax is payable on assessable income less allowable deductions. Assessable income includes income from employment, rent, interest and profits from trade and business or professions. Allowable expenses include mortgage interest, certain subscriptions, social insurance contributions and pension contributions.
Basis of Taxation: All Cyprus tax residents are taxed on all income accrued or derived from all sources in Cyprus and abroad. Individuals who are not tax residents of Cyprus are taxed only on income accrued or derived from sources in Cyprus. An individual is tax resident in Cyprus if he spends in Cyprus more than 183 days in any year. Days in and out of Cyprus are calculated as follows:
(a) the day of departure from Cyprus counts as a day of residence outside Cyprus
(b) the day of arrival in Cyprus counts as a day of residence in Cyprus
(c) arrival and departure from Cyprus in the same day counts as one day of residence in Cyprus
(d) departure and arrival in Cyprus in the same day counts as one day of residence outside Cyprus
Tax Deductions: The following are deducted from income:
- Contributions to trade unions or professional bodies: the whole amount
- Loss of current year and previous years: the whole amount
- Rental income: 20% of gross rental income
- Donations to approved charities (with receipts): the whole amount
- Social Insurance, provident fund, medical fund, pension fund contributions and life insurance premiums (the allowable annual life insurance premium is restricted to 7 percent of the insured amount): up to 1/6 of the chargeable income
Social Grants: The following social grants are given:
- Grant for every child receiving full time higher education in Cyprus (with certain restrictions) or full time university education outside Cyprus. Families with more than three children receive an additional grant
- Grant for blind persons
- Basic child grant and additional child grant for families that have a gross family (applicant, spouse, children) income below the specified threshold.
The actual amounts of social grants are revised annually and announced at the beginning of each year.
Tax Year: Cyprus tax year is the calendar year.
Special Expatriate Tax Regime: Nonresident individuals who stay less than 183 days a year in Cyprus are taxed only on their income gained in Cyprus.
A non-resident taking up employment and becoming resident in Cyprus will be given a 20% tax allowance (capped at 8,543 Euros) on employment income for the three years following the year of becoming resident in Cyprus.
Cyprus Corporate Tax RatesCyprus corporation tax rates for 2009 are 10% for Companies, and 25% for Semi-government organisations.
All companies tax residents of Cyprus are taxed on all their income accrued or derived from all sources in Cyprus and abroad. A non-Cyprus tax resident company is taxed on income accrued or derived from a business activity which is carried out through a permanent establishment in Cyprus and on certain income arising from sources in Cyprus.
A company is resident of Cyprus if it is managed and controlled in Cyprus.
Cyprus is not a tax haven but a tax incentive country. The corporate tax rate in Cyprus is the lowest in the EU, the tax regime provides many exemptions and the island has a wide network of double tax treaties.
Cyprus has set up a tax system which is ideally suited both to inbound and outbound EU investors. It resulted in aligning Cyprus with EU directives, abolishing all distinctions between international business (formerly "offshore") and local companies whilst maintaining a favourable tax regime for the international investor that includes the following features:
- corporate profits are taxed at 10 percent
- investment income from dividends is, subject to certain conditions, tax free
- profit on sale of shares and securities is tax free
- repatriation of profits from Cyprus companies (dividends, royalties, interest) to non-residents is tax free
- no time restriction on carrying forward tax losses
- group relief provisions
- no CFC rules apply
The Cyprus business and tax environment is particularly suited to the following investment activities:
- holding companies
- investment funds and companies
- finance companies
- royalty companies
- south Europe, Middle East, Russia, central and eastern Europe headquarter business activities
Withholding Taxes - Paid from Cyprus
Dividends: No withholding taxes exist for dividend payments which are made to non tax residents of Cyprus.
Interest: No withholding taxes exist for interest payments which are made to non tax residents of Cyprus.
Royalties: No withholding taxes are levied on royalties as long as the right is used outside Cyprus.
Exemptions
- Profit from the sale of securities: The whole amount
- Dividends: The whole amount
- Interest not arising from the ordinary activities or closely related to the ordinary activities of the company: 50%
- Profits of a permanent establishment abroad, under certain conditions: The whole amount
Tax Deductions:
All expenses incurred wholly and exclusively in earning the income of the company including:
- Donations to approved charities (with receipts): The whole amount
- Employer's contributions to social insurance and approved funds on employees' salaries: The whole amount
- Any expenditure incurred for the maintenance of a building in respect of which there is a Preservation Order: Up to €700, €1.100 or €1.200 per square meter (depending on the size of the building)
- Entertainment expenses for business purposes: 1% of the gross income with maximum amount of €17.086
- Interest incurred for the acquisition of a fixed asset used in the business: The whole amount
but not including:
- Expenses of a private motor vehicle: The whole amount
- Professional tax: The whole amount
- Interest applicable to the cost of acquiring a private motor vehicle, irrespective of its use and to the cost of acquiring any other asset not used in the business: The whole amount for 7 years
Losses Carried Forward: The tax loss incurred during a year and which cannot be set off against other income is carried forward and set off against future profits with no time restriction. This provision is applicable for all losses incurred from 1997 tax year onwards.
The current year loss of one company can be set off against the profit of another provided the companies are Cyprus tax resident companies of the same Group. Group is defined as:
(a) One company holding at least 75% of the shares of the other company.
(b) At least 75% of the voting shares of the companies are held by another company.
A partnership or a sole trader transferring business into a company can carry forwarded tax losses into the company for future utilization.
Losses from a permanent establishment abroad can be set off with profits of the company in Cyprus. Subsequent profits of the permanent establishment abroad are taxable up to the amount of losses allowed.
Reorganizations: Transfers of assets and liabilities between companies can be effected without tax consequences within the framework of reorganization. Reorganizations include:
(a) mergers
(b) demergers
(c) transfer of activities
(d) exchange of shares
(e) partial divisions
(f) transfer of registered office
Special Tax Rates
Income of a person from the rendering of ship management services, as these are specified in the Merchant Shipping Law (in the case of an individual, no personal allowances, credits or exemptions are allowed): 4,25%
The gross amount of any royalty, premium, compensation or other income, derived from sources within Cyprus by any person not being resident, is subject to withholding tax: 10%
The gross amount of any rental in respect of the showing of cinematograph films in Cyprus, derived by any person who is not resident, is subject to withholding tax: 5%
The gross income derived by an individual not resident in Cyprus, from the exercise in Cyprus of any profession or vocation or of public entertainers including football clubs and other athletic missions, is subject to withholding tax: 10%
Profits earned or dividends paid by a Cyprus Shipping Company which owns ships under the Cyprus flag and operates in international waters (including chartering), or on the salaries of officers and crew of such ships. This includes bare boat chartering of a vessel flying the Cyprus flag under parallel registration: Nil
Special Contribution to the Defense Fund: Special contribution to the defense fund is imposed on income earned by Cyprus tax residents. Non Cyprus tax residents are exempted from special contribution to the defence fund.
Allowance for Foreign Tax: In case that foreign tax was paid on income subject to special contribution to the defense fund, this can be given as an allowance against the special contribution payable on the income, irrespective of the existence of a double taxation relief with the foreign country.
Deemed Dividend Distribution: If a Cyprus resident company does not distribute a dividend within two years from the end of the tax year
then:
- 70% of accounting profits (after some adjustments) are deemed to have been distributed.
- 15% special contribution for defense is imposed on deemed dividend distribution applicable to shareholders who are residents of Cyprus.
- Deemed distribution is reduced with payments of actual dividends which have already been paid during the two years from the profits of the relevant year.
- When an actual dividend is paid after the deemed dividend distribution, then special contribution for defense is imposed only on the additional dividend paid.
- In case of two tier structures of Cyprus companies (parent with subsidiary) owned by non resident shareholders, defense contribution paid by the subsidiary on deemed distribution may be claimed back by the non resident shareholder upon receipt of an actual dividend.
Cyprus Capital Gains Tax
Capital gains tax in Cyprus is imposed on profits from disposal of immovable property situated in Cyprus, or shares in companies, which have immovable property in Cyprus, and such shares are not listed in any stock market. The tax is imposed on the net profit from disposal at the rate of 20%.
The net profit is calculated as the disposal proceeds less the greater of the cost or market value on 1 January 1980 adjusted for inflation. Inflation is calculated using the official Retail Price Index. The index on 1 January 1980 was 34,96.
Exemptions:
- Transfer by reason of death.
- Gifts to relatives within the third degree of kindred.
- Gift to a company of which the shareholders are and continue to be members of the disposer's family for five years after such gift.
- Gift by a company, of which all the shareholders are members of the same family, to any of its shareholders when the property gifted was also acquired by the company as a gift. The property must remain in the hands of the donee for a period of at least three years.
- Gift to the Republic or to a local authority for educational or other charitable purposes or to approved charitable institutions.
- Exchange or sale in accordance with the Agricultural Land (Consolidation) Laws.
- Exchange of properties, provided that the whole of the gain made on the exchange has been used to acquire the other property (rollover relief). The gain that is not taxable is deducted from the cost of the new property.
- Gain on disposal of shares, which are listed on any Stock Exchange.
- Gains from transfer of property or shares in case of reorganization.
- Expropriations
- Transfers as a result of approved reorganization scheme.
Lifetime tax exemptions for individuals:
- For sale of own private residence (subject to certain conditions): €85.430
- For sale of agricultural land by a farmer: €25.629
- For other sales: €17.086
The above exemptions are given to an individual only once and not for every disposal. The maximum deduction that can be taken by an individual when a claim is made under any combination of the above is €85.430.
Immovable Property Tax: Cyprus Immovable Property Tax is imposed to the market value as at 1 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 person are both liable to Immovable Property Tax.
Property Value / Tax Rate %
€0 - 170.860 0
€170.861 - 427.150 0.25%
€427.151 - 854.300 0.35%
Over €854.300 0.40%
Land Registry Office Fees: Transfer fees are calculated on the market value of the property as estimated by the Land Registry Department.
Value per plot / Tax Rate %
Up to €85.430 3%
€85.431 - 170.860 5%
Over €170.860 8%
Mortgage fees on loans: 1%
Transfer fees paid on the transfer of property to a family company are refundable after 5 years, provided the company still owns the property and there have not been any changes to its shareholders.
On the transfer of immovable property from a family company to its shareholders as well as on transfers by donation between spouses, spouses and children or relatives up to third degree of kindred, transfer fees are calculated on the value of property appearing on the title deed at the following rates:
- Transfer to spouse: 8%
- Transfer to children: 4%
- Transfer to relative: 8%
Capital Duties
Upon incorporation of the company:
- Authorised share capital: €102,52 plus 0,6% on the authorised share capital.
- Issued share capital: There is no stamp duty payable if the shares are issued at their nominal value. There is a €17,09 flat duty if the shares are issued at a premium.
Upon subsequent increases:
- Authorised share capital 0,6% on the additional share capital.
- Issued share capital €17,09 flat duty on every issue, whether the shares are issued at nominal value or at a premium.
- Powers of attorney - general: €5,13
- Powers of attorney- limited: €1,71
- Certified copies of contract and documents: €1,71
Corporate Groups: Group loss relief is available to a group of Cyprus resident companies in relation to current year losses. Two companies will be considered as part of a group if one company holds 75% of the voting share capital or distributable profits of the other, or both companies are 75% subsidiaries of a third company.
Fringe Benefits Tax (FBT): Certain benefits such as use of cars for private purposes, rent, school fees etc are considered as benefits in kind and taxed accordingly.
Local Taxes: Local taxes include transfer fees on sale and purchase of property, stamp duty (only in respect of assets situated in Cyprus), and property tax.
Other Taxes in Cyprus: Contributions to the social insurance fund are paid on the salaries of resident employees. The total amount paid by an employer can vary from 10% to 18% of the gross salary. The employee pays a further 6.3%. The maximum salary on which contributions are paid is currently EUR 3,836 per month.
Cyprus International Trusts: A Cyprus International Trust is a trust set up in accordance with the provisions of the International Trust Law of Cyprus.
Cyprus International Trusts are exempt from taxation in Cyprus and the beneficiaries are taxable via the trustees. The accumulation of funds in a discretionary Cyprus International Trust is tax free in Cyprus, although each beneficiary may be subject to tax in his/her jurisdiction upon receipt of the trust appointment, as local laws will determine. This tax liability is not a liability of the trust but of each beneficiary personally.
In accordance with the International Trust Law of Cyprus, in order to qualify as an international trust the following four conditions must be met:
(a) The settlor must not be a permanent resident of Cyprus; (the settlor in the present trust will be Emperor which qualifies as it is non Cyprus-owned).
(b) At least one of the trustees for the time being must be a permanent resident of Cyprus.
(c) None of the beneficiaries, other than a charitable institution, must be a permanent resident of Cyprus.
(d) The trust property must not include any immovable property situated in Cyprus.
Cyprus VAT Rates (Value Added Tax)Value Added Tax (VAT) is imposed on the provision of goods and services in Cyprus, as well as on the acquisition of goods from the EU and the importation of goods into Cyprus.
Taxable persons charge VAT on their taxable supplies (output tax) and are charged with Value Added Tax (VAT) on goods or services which they receive (input tax).
For intra-community acquisitions of goods (except goods subject to excise duty or new means of transport) the trader does not pay VAT on receipt of the goods in Cyprus but instead accounts for Value Added Tax (VAT) using the acquisition accounting method. This involves a simple accounting entry in the books of the business whereby he self charges VAT and at the same time claims it back if it relates to taxable supplies thereby creating no cost to the business.
Where the acquisition relates to an exempt transaction, the trader must pay the Value Added Tax (VAT) that corresponds to the acquisition.
Value Added Tax (VAT) Rates in Cyprus: The tax legislation provides for the following tax rates:
- zero rate
- reduced rate (5 percent) from 1 July 2000
- reduced rate (8 percent) from 1 August 2005
- standard rate (15 percent) from 1 January 2003
Zero Rate
- Supply of goods and services to other EU member states
- Exports to non-EU countries
- Foodstuffs
- Commissions received from abroad for import-export of goods
- Certain medicines and vaccines
- International air and sea transport
- Processing carried out on goods in Cyprus on behalf of a customer abroad provided that the goods will be exported outside the EU when the processing finishes.
Reduced Value Added Tax (VAT) Rate
- Hotel accommodation fees (8%)
- Supply of goods made in the course of catering (except alcoholic drinks) (8%)
- Rural and private taxi transport services (8%)
- Tourist excursion and long distance bus services (8%)
- Supply of fertilisers, animal feeding products and seeds (5%)
- Supply of live animals for human consumption (5%)
- Newspapers and magazines (5%)
- Books, magazines and newspapers (5%)
- Non-bottled water (5%)
- Liquid gas (5%)
- Transfer of persons on a rural or city bus (5%)
- Various goods for the use of handicapped persons (5%)
- Ice cream and similar products (5%)
- Funeral service and supply of coffins (5%)
- Road sweeping, garbage collection and recycling (5%)
- Services of authors, composers and artists (5%).
Exemptions
The following services are exempt from Value Added Tax (VAT):
- Rents
- Most medical services
- Most insurance and financial services
- Educational services
- Management services provided to mutual funds.
Value Added Tax (VAT) Registration: Registration is compulsory for businesses with turnover in excess of €15.600 in a year or with an expected turnover in excess of €15.600 in a thirty day period that follows. Businesses with less than this turnover have the option to register only if they so elect.
An obligation for registration also arises for businesses which make acquisitions of goods from other EU member states in excess of €10.252 during any calendar year.
A person who has a business establishment in Cyprus or the usual place or residence/place of incorporation is in Cyprus that provides supplies (goods or services) only outside Cyprus, has the right to register for VAT and thus recover all the VAT incurred on his/her expenses, provided that these supplies would have been taxable in Cyprus had they been provided in Cyprus.
Exempt goods and services and transactions of capital nature are not taken into consideration when determining the annual turnover for registration purposes.
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