Cyprus: Personal Taxation

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Cyprus Residence and Liability for Taxation

Residence is defined as presence in the country for more than 183 days in a calendar year (which is the tax year), and then applies to the whole year. Resident individuals are subject to tax on their world-wide income; non-residents are taxed only on certain types of income arising in Cyprus.

After the EU finally agreed its Tax Directive in June, 2003, Cyprus announced that it would implement the 'information sharing' provision of the Directive on entry to the Union in 2004. This means that information about savings returns received in Cyprus by nationals of other EU countries is now being passed to the tax authorities in the individuals' home countries.

In August 2011, parliament adopted a package of austerity measures designed to help narrow the budget deficit which included an additional top rate of income tax of 35% for income over EUR60,000, to take effect in 2012. In addition, the rate of Special Defence Contribution on interest and dividends is increased from 10% to 15% and from 15% to 17%, respectively, with immediate effect. These measures are expected to affect Cyprus residents only. However, employees who take up residence in Cyprus and earn in excess of EUR100,000 per year will be able to claim an exemption from income tax of 50% of their employment income for a five-year period, starting January 1, 2012.

Cyprus Income Tax

Income tax is levied on world-wide income. Such income includes employment income (including benefits), profits from a business activity, rentals from immoveable property and royalties, and pensions received (pensions from abroad may be taxed at the rate of 5% for amounts in excess of a designated amount, see below).

See Double Tax Treaties for details of Treaty exemptions and reliefs.

Various deductions are permitted, including some in respect of share ownership; and there are personal allowances. Married persons are taxed separately.

Non-residents of Cyprus are taxed in Cyprus on employment income (including benefits), in relation to services rendered in Cyprus, profits from a business activity which is carried out through a permanent establishment in Cyprus, rentals from immoveable property situated in Cyprus, and pensions in respect of employment exercised in Cyprus, with the exception of pension paid from a fund established by the Government or local authority.

Chargeable income (after all allowances) is taxed (from 2008) as follows:

– up to EUR19,500	nil
– from EUR19,501-28,000	20%
– from EUR28,001-36,300	25%
– above EUR36,300	30%

Pension income is charged at 5% on amounts over EUR3,417 pa provided that the individual is neither Cypriot, nor has economic activity on the island.

A 'Special Defence Contribution' applies to certain types of income as follows:

3% on: interest received by provident funds; the profits of semi-governmental bodies; rental income received by a Cyprus individual or corporate resident from immovable property (after deducting 25%); interest received by an individual with a yearly income below EUR11,960 (at the time of writing) and interest received by individuals from Government bonds and Government savings certificates.
10% on: interest received by a legal entity unrelated to its normal business or by an individual with income over EUR11,960 pa.
15% on:dividends received by individuals in Cyprus.

Under legislation adopted in late 2009, interest received by individuals through business operations will be subject to regular income tax, but not the Special Defence Contribution; non-business interest income will be subject to the SDC at 10%, but not to income tax.

Certain other special regimes operate for non-resident entertainers, sportspeople and experts.

Individuals exercising an office or employment in Cyprus, whose residence was outside Cyprus before the commencement of the employment, are granted a tax exemption for 20% of their remuneration, or EUR8,000 (at the time of writing), whichever is the lower, during a period of three years starting at the beginning of the year following the year of commencement of their employment.

In August 2011, parliament adopted new tax measures increasing the rate of the Special Defence Contribution on interest to 15% and on dividends to 17%. However, interest derived by individuals from provident funds and government bonds will continue to be taxed at 3%, as will interest earned by individuals earning less that EUR12,000 per year.

Cyprus Capital Gains Tax

Capital gains tax is charged at the rate of 20% on gains arising from the disposal of immovable property in Cyprus or the disposal of shares of companies which own immovable property in Cyprus. Gains from the sale of shares listed on the stock exchange are excluded from capital gains tax.

The taxable gain is the difference between the proceeds of sale and the original cost of the property plus the cost of improvements cost, adjusted for inflation from the date of acquisition.

Some disposals are exempt from taxation, including transfer by reason of death and gifts between relatives. There are some circumstances in which rollover relief is available if a gain is used for the purchase of a further property.

The first EUR85,430 (at the time of writing) of a gain made by an individual on disposal of a personal property is exempt from tax. This exemption is available only once. The immovable property tax is paid on 30th September every year.

Capital gains tax does not apply to profits from the sale of overseas real estate by non-residents, by offshore entities, or by residents who were not resident when they purchased the asset.

Under the Capital Gains Tax (Amendment) Law, No. N119(I) of 2002, effective 1st January 2003, gains accruing from disposal of shares listed on any recognised Stock Exchange will be exempted from tax.

Gains accruing from disposal of immovable property held outside Cyprus and shares in companies, the property whereof consists of immovable property held outside Cyprus, will be exempted from capital gains tax.

Cyprus Estate Duty

Estate duty was abolished in 2000.

Cyprus Real Estate Taxes

There is an annual real estate tax based on the market value of property (it can be divided between multiple owners):

– up to EUR170,860	nil
– EUR170,861-427,150	2.5%
– EUR427,151-854,300	3.5%
– Above EUR854,300	4%

Further property taxes between 0.1% and 0.5% per annum are levied by local authorities.

Real estate transfer tax is payable on the actual consideration or on market value, whichever is the higher, by the transferee.

There is a transfer tax on gifts of real estate within a family, but the amounts are quite small.

Cyprus Customs Duties

Customs Duties are imposed under the Customs and Excise Duties Law Cap 34, 1975. There are quite high duties on many consumer items, including motor vehicles, furniture, confectionery and cosmetics; however, as a result of the accession of Cyprus to the EU, import duty has been abolished on most goods coming from the EU.

There are excise duties on alcohol, tobacco, motor vehicles, petrol and soft drinks.