Cyprus personal tax rates 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%
A person who is resident for 183 days or more in aggregate during the tax year is deemed to be tax resident. All individuals who are residents of the Republic are taxed on their worldwide income. Non-resident individuals are taxed on income emanating from Cyprus only.
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.
Pensions receivable from abroad by a resident in respect of services rendered outside Cyprus are still taxed at 5%, after deduction of the first EUR 3,417 if the individual elects to do so.
In the case of an individual taking up employment in the Republic, who was nonresident 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 nonresident employer or at a PE abroad of a resident employer are exempt from income tax.
Basis - Resident individuals are subject to income tax on their worldwide income. Nonresident individuals are taxed only on their Cyprus-source income. Some types of income (dividends, interest and rent) are subject to a special defence contribution at the rates of 3%, 10% and 15%, respectively.
Residence - An individual is resident in Cyprus if he/she stays in Cyprus for a period or periods exceeding in the aggregate 183 days in the tax year.
Filing status - Each individual is assessed on a separate basis. Joint assessment for couples is not possible.
Taxable income - Personal income tax is imposed on business profits, income from an office or employment, discounts, pensions, charges or annuities, rents, royalties, remuneration or other profits from property and net consideration in respect of trade goodwill. Expenses incurred for the production of income are tax deductible.
Capital gains - See under "Corporate taxation".
Deductions and allowances - The most important personal deductions are: donations to approved charities; social insurance fund contributions (and similar contributions paid abroad); life insurance premiums; pension plan contributions; and medical fund contributions.
Tax Rates - The first EUR 19,500 is tax free with progressive tax rates imposed up to 30% on remaining amounts.
Social security - Employees are required to make social insurance contributions at a rate of 6.8% of their salary (up to EUR 48,048). Self-employed individuals contribute at 12.6%. The contribution is calculated on notional income, which varies according to the trade or profession.
Cyprus corporation tax rate is 10% for Companies, and 25% for Semi-government organisations.
A Cyprus resident company is subject to corporation tax on its worldwide income. Non-resident companies are subject to corporation tax only on profits derived in the Republic. Resident companies are those companies whose management and control is exercised from Cyprus.
The corporation tax rate is 10%. Taxes are paid by three instalments in advance based on a provisional assessment, which should be at least 75% of the final tax charge. A fiscal year is the calendar year.
CAPITAL GAINS TAX
Gains in respect of the sale of immovable property situated in Cyprus (including shares of a company whose assets include such immovable property) are subject to Capital Gains Tax. Both residents and non residents are subject to capital gains tax if they own immovable property in Cyprus. The applicable rate on the taxable income is 20%. No tax is levied in respect of immovable property situated abroad. No tax is levied on capital gains in respect of profits on disposal of shares of companies (other the ones which own immovable property).
BRANCH PROFITS TAX
Branches managed and controlled from Cyprus are taxed as a resident 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 include transfer fees on sale and purchase of property, stamp duty (only in respect of assets situated in Cyprus), and property tax.
Contributions to the social insurance fund are paid on the salaries of resident employees. The total amount paid by an employer can vary from 10.5% to 18.5% of the gross salary. The employee pays a further 6.8%. The maximum salary on which contributions are paid is currently EUR 4,004 per month.
DETERMINATION OF TAXABLE INCOME
Resident companies pay taxes on their net taxable profits. These are determined by pooling their worldwide income and deducting allowable expenses, charges and capital allowances. Non-resident companies pay taxes on their Cyprus-sourced income only.
Annual wear and tear allowances are allowed on various assets including plant and machinery; fixtures and fittings; commercial vehicles; hotels; commercial buildings; industrial buildings; computer hardware and software; and loose tools. Allowances range from 3% to 33% per annum. No capital allowances are given for saloon cars.
Depreciation included in the financial statements of entities is disallowed for tax purposes, as capital allowances are given instead. For accounting purposes, depreciation rates applied are those which write-off the assets over their useful life.
Opening and closing stocks are normally stated at the lower of cost and net realizable value on a FIFO basis.
CAPITAL GAINS AND LOSSES
Capital gains are computed separately and do not form part of the annual taxable income for corporation tax purposes. Indexation allowance is available for the determination of the taxable gains and losses. Capital losses can be offset against capital gains for the same fiscal year.
Dividends receivable are exempt from corporation tax, subject to the CFC rules
Interest expense is deductible if the borrowing is wholly and exclusively for the purposes of producing income. Interest paid to a connected party is a deductible expense.
Trading losses may be carried forward indefinitely. Losses from overseas activities can be set off against chargeable income for the year and can be carried forward.
If, within any period of three years, there is both a change in the beneficial ownership of a company and a major change in the nature of trade and, at any time before the change of ownership the activities in the trade become small or negligible, then no trading losses incurred prior to the change in ownership are allowed.
FOREIGN SOURCE INCOME
Cyprus has controlled foreign company legislation (CFC) legislation. Profits from a permanent establishment abroad or dividends from an overseas company are taxed if the nature of their activities amounts to more than 50% investment income and their country of residence imposes corporation tax which is less than 5% p.a. Both criteria must apply in order for the tax to be charged.
Some of the main incentives are as follows:
(a) low corporation tax of rates at 10%
(b) non-resident entities are only taxed on their Cyprus-sourced income
(c) no withholding tax on payments to non-residents
(d) profits and dividends from abroad are tax-free free subject to CFC rules stated above
(e) restructuring legislation in line with the EU Merger Directive extending to companies in non-EU countries.
(f) low VAT rate
(g) a Cyprus holding company can pay virtually no tax on its profits.
FOREIGN TAX RELIEF
Foreign tax paid on income of a Cyprus resident company is credited against the corporation tax, subject to Double Tax treaty conditions. In the absence of a tax treaty, the tax paid in a non-treaty country is normally allowed as a deductible expense. Tax paid is credited only if a similar concession is given to Cyprus companies in that particular country. The foreign tax relief cannot exceed the Cyprus corporation tax on these profits.
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. The group must be in existence within the whole fiscal year.
RELATED PARTY TRANSACTIONS
Transactions between related parties do not need to be adjusted for tax purposes as long as they are on 'an arm's length' basis.
Resident companies must withhold taxes on certain royalty payments depending on the rates provided in any tax treaty. Cyprus has entered into double tax treaties with over 40 countries. Non-resident companies have no obligation to withhold taxes on any payments they make.
Resident companies withhold contributions to the defence fund of the Republic on dividends paid to resident individuals at the rate of 15%. Dividends paid to nonresident shareholders are not subject to withholding tax.
Interest income is subject to a withholding contribution to the defence fund of 10%. If interest is received from abroad, such income is assessed as above at 10%.
Where interest is considered as profit close to the ordinary activities of the company, then such type of income is considered as trading profit and not interest. Hence it is not subject to defence contribution. Examples include financing and insurance companies etc.
A company resident in Cyprus for tax purposes shall be deemed to have distributed 70% of its accounting profits (excluding unrealised gains/losses and after deduction of tax paid on these profits and any transfers to legal reserves) in any fiscal year by way of a dividend to its resident shareholders at the end of the second year following the end of the said financial year in which the profits were made. The company shall be obliged to effect payment to the Inland Revenue equal to 15% of the amount of the deemed dividend distribution. Such dividend shall be reduced by the amount of dividends actually distributed. This is not applicable to non-resident shareholders.
There are no exchange controls in Cyprus.
Income Tax Rate
Corporate Tax Rate
Sales Tax / VAT Rate
Last Update: Nov 2010
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