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Cyprus Income Tax Information for 2011

For individuals spending more than 183 days per financial year in the Republic of Cyprus, income tax becomes payable according to the details outlined below.

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A short breakdown of Cyprus' Income Tax Rates and Regulations

 
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Information about Cyprus

As most accountants, and tax specialists will tell you, the Republic of Cyprus boasts the second most benevolent income tax climate in the European Union.

With high tax-free allowances, and comparatively low rates of supertax rates, the Republic has become a favourite base of operations for high earners from around the E.U. There are a couple of downsides as well though.

 

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Tax Glossary

Generally speaking, income tax, and how it is applied in Cyprus, falls into two categories

Taxation for Residents

After living or staying here for 183 days or more, an individual is considered to be resident in Cyprus. Income tax then becomes payable in respect to the following local and global sources:

a) Income from a business or employment
b) Business profits
c) Rents from property owned
d) Interest
e) Any consideration with regards to trading goodwill

 

Taxation for Non-Residents

For Non-Residents of Cyprus, Income Tax is payable on revenues derived only from the Cypriot sources listed below. Such income is then taxable under existing dual taxation treaties with the non-resident's home nation.

a) Profits from a permanently established business
b) Income from employment
c) Rents from property
d) Any consideration with respect to trading goodwill
e) Professional income (Self-Employment)

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Income Tax Rates

Income between €00,000 to €19,500 is tax-free

Income between €19,501 to €28,000 is taxed at a rate of 20%

Income between €28,001 to €36,300 is taxed at a rate of 25%

Income of €36,301 and over is taxable at a rate of
30%

 

Main Tax Allowances

As in other European Union countries, tax-relief is available on certain expenses and contributions. Some of these are:

  • Social Insurance contributions
  • Life Insurance premiums
  • Provident Fund or other approved fund contribution
  • Trade Union contributions
  • Contributions to professional bodies
  • Charitable contributions without any upper limit

Income Tax for Employees

Here, a distinction is made between residents and non-residents.

Resident:
a) Any Employee working solely in the Republic of Cyprus.
Taxation is applied at source under the PAY AS YOU EARN (PAYE) system. This applies for salaries, wages, directors remuneration, remuneration from offices and pensions, as well as fringe benefits.

b) Any Employee working partly in the Republic of Cyprus and partly abroad:
Employees are liable to tax at normal rates on the whole amount of such income from employments but an exemption applies in respect of the remuneration relating to the rendering of services to a permanent establishment outside Cyprus of a resident employer/employee to a non-resident employer outside the Republic for a total aggregate period of more than 90 days in the year of assessment.

Non-resident:
All non-resident Employees are liable for income tax only in respect of emoluments for services rendered while working in Cyprus, and for pensions derived from such employments.

Taxation of Dividends

Residents & Non-Residents: Dividends received fall outside the scope of Cyprus' income tax laws.

One Exception is the Special Defence Contribution

For Residents, dividends are taxed only under the special defence contribution law at 15%, which is deducted at source by the paying company.

For Non-residents, Dividends paid by a resident company are not taxable.

Taxation of Interests

Residents & Non-Residents: Interest of any kind is completely exempt from Cypriot income tax.

Once again, an exception is made for the Special Defence Contribution

For Residents, interest is taxed under the special defence contribution at the rate of 10%, deducted at source by the payer.

Interest from savings bonds, Government stocks and deposits with the Housing Finance Corporation is taxed at a rate of 3%. This reduced rate also applies where the recipient is a provident fund (not any other fund even if an approved one under the income tax law).

Additionally, individuals having an annual total income of £7.000 or less, including interest, may apply to the Revenue authority for a refund of the tax in excess of 3%.

Interest which is earned from the carrying on a business or which is closely connected with the carrying on of a business, is deemed to be business profit and not interest. Deemed interest under the income tax law is subject to 10% special defence contribution.

Non-resident: Interest of any type is exempt from special contribution for defence.

Income Tax on Rents

Residents: Rents from sources within or outside Cyprus are subject to income tax.
Non-resident: Rents from properties within the Republic of Cyprus ONLY are subject to income tax.

In either case, the individual is entitled to the following annual allowances:
a) A tax-free allowance of 20% on the gross rent.
b) A deduction of the total interest paid for the acquisition of the property rented.
c) Capital allowances of 3% on the cost of the rented property.

You guessed it, residents are once again liable for the Special Defence Contribution

For Residents, gross rents from Cypriot sources, or those outside Cyprus, after a 25% allowance, are subject to a special defence contribution of 3%.

Non-resident: Not liable to special defence contribution.

Please note: The special defence contribution is payable by the recipient of the rent in two installments on the 30th June and the 31st December each year.

Income Tax for Self-Employed Individuals

Income of self-employed individuals (as sole traders or as partners) is taxable in respect of their business or professional income. Any receipt in respect of trading goodwill also becomes subject to income tax.

In cases where trading income is derived from outside Cyprus, income tax is also payable by residents. However, if such income is derived from a permanent establishment abroad, full exemption will be granted, subject to certain conditions. If any foreign income is made taxable in Cyprus, any foreign tax is given as a credit against Cyprus' Income tax under established dual taxation treaties.

Special Defence Contribution: There is no special contribution on earned income of self-employed individuals.

In Cyprus, income tax rates are low, but you must also consider Social Insurance Contributions

We tell you what others don't.

For many of you who are thinking of moving to Cyprus, finding work or starting a business are among the top priorities. But while most overseas property websites are quick to let you know how favourable the Republic of Cyprus' income tax laws are, and how much you're allowed to earn before you even have to pay any tax in the first place, none of them ever mention Social Insurance Contributions, or rates.

If you're employed, the total Social insurance contributions run at 12.6%, and are paid by your employer. Your share of the contribution runs at 6.3%, while your employer is supposed to pay the remaining 6.3%. But this is where trouble often starts, as some less scrupulous employers in Cyprus will either try to deduct the entire contribution from their employees, or make the standard deductions from salaries without actually passing them on to the Cypriot Ministry of Finance. Take it from us that a little research into your prospective employer can go a long way towards your financial security.

If you're thinking of starting your own business, you're faced with a different set of circumstances entirely. For self-employed individuals, standard social insurance contributions run at 11.6%, which is fair enough in itself. However, when you register as self-employed, you have no income record, so the Cypriot authorities make an arbitrary guess at how much you should be earning, based on whatever it is you're doing. This guess, which is invariably on the high side for foreign nationals, then determines the amount of your contributions per quarter.

What's more, they don't tell you that substantial rebates are available for start-up businesses.

So when the bureaucrat in question sits there with a self-satisfied smile on his or her face after telling you, that you owe the Cypriot government €200 per month, just tell them you're going to appeal the amount. Then go and find yourself a decent accountant, who, for the paltry sum of about €150 will put all your self-employment affairs in order, and handle the contributions appeal for you at the same time.

Given how much you'll save, it's money well spent.

We don't just want to sell you a property.
We make sure you're safe, satisfied and informed.

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Disclaimer. Please note that the tax information given on this website is displayed for guidance purposes only. It does not replace the need for professional advice by a qualified accountant.. E&OE

 

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