Taxation in Cyprus

Основы налогообложения на Кипре
11 July 2022 Vladimir Melnik
885

Profitable placement of capital is the key to financial well-being.

In the conditions of global economic instability, Cyprus remains attractive for investment. In particular, thanks to the progressive tax policy approved by the European Union. The Cyprus taxation system is beneficial to both individuals and legal entities wishing to expand their existing business or open new businesses.

To obtain the status of a tax resident of the Republic of Cyprus, an individual must stay in the country for at least 183 days during a calendar year. In addition, there is a "60 days" rule. Individual residents pay taxes on income from sources located both in Cyprus and abroad. Non-residents pay taxes on certain types of income received in Cyprus.

Personal income tax rates are determined depending on the size of the tax base: 


Income (Euro)

Tax rate (%)

less than 19500

0

from 19501 to 28000

20

from 28001 to 36300

25

from 36301 to 60000

30

over 60,000

35

Pension payments from abroad are taxed at the rate of 5% if the amount for the year exceeds 3.42 thousand euros. The tax rate on the pension of widows (widowers) received in Cyprus is 20% if the total amount exceeds 19.5 thousand euros per year. 

Exempt from taxation: 

  1. profit from the sale of securities
  2. income received from the activities of a permanent representative office abroad
  3. remuneration for paid services rendered for a period exceeding 90 days outside Cyprus to an employer who is not a resident of Cyprus, or rendered to a permanent representative office of an employer who is a resident of the Republic
  4. lump-sum payments in connection with retirement or compensation in case of injury or death
  5. dividend income
  6. interest income. 

The last two items are subject to a contribution for defense needs.

Remuneration for employment in Cyprus of an individual who is not a tax resident of the country before starting work in Cyprus is subject to 20% tax, but not more than 8.55 thousand euros per year. This tax benefit is available after employment for 5 years. The countdown is conducted from 2012 or after and begins with the tax year following the years in which the activity began. The year 2030 is the last tax year possible for the application of the benefit.   

The legislation of Cyprus in the country provides for the following tax deductions:

  1. for union dues
  2. for losses of the current year and previous years
  3. on rental income (taxed at 20%).

Contributions to social insurance, to the medical fund of the general health system, pension and reserve funds are taxed in the amount of no more than 20% of the amount of taxable income.

Cyprus Property Tax

Since 2017, the immovable property tax has been abolished in Cyprus. When buying from a development company, its price includes VAT of 19%. However, for the first purchased 200 m2 of living space, an individual can pay 5% if the object is purchased for permanent residence and is not an investment.

When buying a home on the secondary market, VAT is not charged, but you must pay a tax on the transfer of ownership.  


The cost of housing in euros

Tax rate (%)

up to 85,000

3

from 85,000 to 170,000

5

over 170,000

8

Taxation of legal entities in Cyprus

Companies wishing to take advantage of the Cyprus tax system must be residents of the country. Now these are legal entities that are controlled and managed from the territory of the republic. From next year under the expanded concept "Cyprus tax resident company"firms that do not pay taxes in other countries will be hit. At the same time, the place of registration of the company is not a factor for obtaining the status of a resident. 

Currently, a large preference for legal entities is a profit tax of 12.5%. This is the lowest rate in Europe. However, during the tax reform, the Government of the Republic plans to increase the corporate tax to 15% this year. 

Resident companies of the Republic of Cyprus enjoy benefits and discounts on the following types of income:

  1. profit from released securities
  2. profit from interest and dividends
  3. exchange rate differences resulting from business transactions.

The standard VAT rate in the Republic is 19%.

Along with it, there are preferential rates — 9%, 5% and 0%. They can be applied to individual goods and services. The following industries are completely exempt from VAT in Cyprus: education, healthcare, postal services, lotteries and cultural services provided by non-profit organizations. 

The following types of income are exempt from taxes:

  1. from the sale of securities
  2. income received from the activities of a permanent representative office abroad
  3. income in the form of exchange differences other than the latter related to foreign exchange trading
  4. dividends
  5. interest income. 

The last two are subject to a contribution for defense needs.  

Stamp duty in Cyprus is charged upon registration and signing of documents according to the following scale:

  1. receipts for more than 4 euros 4 cents
  2. checks 5 cents
  3. letters of credit 2 euros
  4. letters of guarantee 4 euros
  5. contracts for a fixed amount from 0 to 2%, but not more than 20 thousand euros
  6. customs declarations 18-35 euros;
  7. waybills and shipping documents 4 euros.

The amount of contributions to the social insurance fund for employers and employees is 8.3% based on the maximum amount of labor remuneration of 58.08 thousand euros.

Currently, the Republic of Cyprus remains one of the most attractive global business platforms.

High-tech companies transfer their business to the island in order to optimize costs under the preferential taxation regime, the IP BOX programallows reducing corporate tax from 12.5% to 2.5% if intellectual property is created in Cyprus. In the near future, it will be possible to provide 50% tax relief for investments in innovative companies and projects.    

Interested in buying a property in Cyprus? Welcome to the DOM website! Here you will find options for houses and apartments in Limassol, Paphos, Larnaca and Famagusta, as well as get the help of experienced specialists.

See also:

  1. The 12 best developers of Limassol
  2. The path of Plus Properties in Cyprus
  3. Why Cypriot new buildings are better than secondary ones: TOP 8 reasons
  4. Permanent residence in Cyprus - permanent residence permit through real estate investments
  5. How to get a mortgage in Cyprus: 7 advantages for borrowers
Source: DOM
Photos: pixabay.com
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