Cyprus Income Tax - Residents are liable for income tax

Anyone who stays in the Republic of Cyprus for more than 183 days in any one financial year is subject to income tax as outlined below.

A short breakdown of Cyprus Income Tax

Individuals:

A Resident is liable to Cyprus Income Tax in respect of income from
Cyprus sources and from sources outside Cyprus (world
income) in respect of the following:

a) business profits
b) income from an office or employment
c) interest
d) rents from property
e) any consideration in respect of trading goodwill

A Non-Resident is liable to Cyprus Income Tax in respect of income from
Cyprus sources ONLY in respect of the following:

a) business profits from a permanent establishment
b) income from an office or employment
c) rents from property
d) any consideration in respect of trading goodwill
e) professional income

Cyprus Income tax rates for individuals are as follows:

Annual Income:

• C£00,000 to C£ 10,000 - Tax Rate: 0%
• C£10,000 to C£15,000 - Tax Rate: 20%
• C£15,000 to C£20,000 - Tax Rate: 25%
• C£20,000 and over - Tax Rate: 30%

The main tax allowances are as follows:

• Social Insurance contributions
• Life Insurance relief
• Provident Fund or other approved fund contributions
  but all together are subject to a maximum of one-sixth of the net taxable income.
• Trade Unions contributions
• Contributions to professional bodies
• Charitable contributions without any upper limit.

Taxation of Employees

A distinction is made between residents and non-residents.

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

b) Employee working partly in Cyprus and partly outside Cyprus:
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 rendering services to a permanent establishment outside the Republic of a resident employer or to a non resident employer outside the Republic, for a total aggregate period in the year of assessment for more than 90 days.

Non-resident:
Employees are liable to tax only under in respect of emoluments for the services rendered while in Cyprus and for pensions from such employments.

Taxations of Dividends (Individuals)

Resident : Dividends are outside the scope of Cyprus income tax.
Non-resident : Dividends are outside the scope of income tax.

Special Defence Contribution

Resident: Dividends are taxed only under the special defence contribution law at 15% deducted at source by the paying company.
Non-resident: Dividends paid by a resident company are not taxable.

Taxation of Interest (Individuals)

Resident: Interest of any kind is completely exempt from income tax.
Non-resident: Interest of any kind is completely exempt from income tax.

Special Defence Contribution
Resident: 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%. The 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.

Taxation of Rents (Individuals)

Resident: Rents from Cyprus source or outside Cyprus are subject to income tax.
Non-resident: Rents from Cyprus ONLY are subject to income tax.

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

Special Defence Contribution

Resident: Gross Rents from Cyprus source or outside Cyprus, after being reduced by 25% are subject to special defence contribution of 3%.

Non-resident: Not liable to special defence contribution.
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.

Taxation of Self-Employed Individuals

Income Tax:

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

Trading income from outside Cyprus is also liable to income tax. 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.

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

More Information about the various aspects of taxation in Cyprus may be found on the following pages:

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