The Tax System in Cyprus
For the purposes of taxation on income "Tax Resident of Cyprus" is defined as:
- An individual (natural person) who stays in Cyprus for a period or periods of time exceeding the total of 183 days in the tax year;
- An individual (natural person) who satisfies all the following conditions in each tax year:
- stays in Cyprus for a period or periods that aggregate to at least 60 days during the tax year;
- does not stay in another state for a period or periods exceeding in aggregate 183 days;
- is not a tax resident in another state;
- exercises a business in Cyprus and/or is employed in Cyprus and/or holds an office in a Cyprus tax resident company at any time during the tax year;
- maintains a permanent home in Cyprus, which can be either owned or rented.
- A company, whose management and control are exercised in Cyprus.
Any person (natural or legal) who is a Tax Resident of Cyprus, for each tax year, is being taxed both on their income obtained or derived from sources both inside and outside Cyprus.
Any person (natural or legal) who is not a Tax Resident of Cyprus, for each tax year, is being taxed charged a tax on income obtained or derived from sources within Cyprus only.
Legal person – a non-domicile company, having a permanent establishment in the Republic of Cyprus, may choose to qualify for tax treatment as a resident of Cyprus.
Voluntary registration to the Tax Department's Registry (for VAT purposes) may be carried out under terms and conditions, e.g. a person who is not permanently established in the Republic of Cyprus but carries out taxable activities in the Republic of Cyprus.
Cyprus offers a wide range of tax advantages to companies conducting business on the island. Such advantages derive from the country's favourable legislation compliant with OECD and EU requirements, as well as from the wide network of double taxation treaties with more than 60 countries involved.
Briefly, the main provisions of corporate taxation are:
- Uniform corporate tax rate of 12.5%, the lowest tax rate in the EU;
- No tax on dividends or interest payments to non-residents, as well as residents not Domiciled in Cyprus;
- No withholding taxes on royalty payments relating to the use of rights outside Cyprus;
- No tax on profits from permanent establishment outside Cyprus, subject to certain terms and conditions;
- No tax on capital gains from disposal of securities listed on a recognised Stock Exchange Market;
- No tax on profits from reorganisations, profits derived from the transfer of ownership or shares and the payment of stamp fees;
- Tax free repatriation of profits and capital;
Personal Income Tax
Individuals are subject to a scaled assessment rate on their annual income, starting with 20%, 25%,30%, and ending at 35%, with the first €19500 of income being non-taxable. One of the lowest statutory personal income tax rates in the EU.
Below are briefly described some of the main provisions of Income Tax applied to Individuals (Natural Persons) :
Income from the sources described below are NOT taxable under CERTAIN rules and conditions:
- Income from Dividend and Interest;
- Profit from permanent establishment outside Cyprus;
- Income from Employment (salary earned abroad) outside Cyprus;
- Profit from the sale of securities;
- loss from trade within the current year and or previous years is deducted from the taxable income, subject to certain terms and conditions;
- Income received in the form of retiring gratuity, compensation for death or injuries, provident fund, pension fund, or other approved funds, is exempted from tax.
Value Added Tax
Value Added tax is levied at a rate of 19% (normal), 9% / 5% (reduced), as well as 0% (zero rate) on specific goods and services, on all supplies of goods and provision of services carried out in the Republic, the acquisition of goods from other Member States and the importation of goods from third countries.
Visitors from non-EU countries can claim a refund of VAT paid on their purchases of goods in Cyprus upon their departure from the country, provided that the purchased goods are transported outside Cyprus (and the EU) in their personal luggage.
Cyprus international trusts enjoy important tax advantages, providing significant tax planning possibilities:
- Income and gains of a Cypriot international trust, derived from sources outside Cyprus are exempt from any tax imposed in Cyprus;
- Dividends and interest received by a trust from a Cyprus international business company are not subject to tax nor are they subject to withholding tax;
- Exemption from taxation in the case of an alien who creates an international trust in Cyprus and retires in the country, on the condition that all the property settled and the income earned is abroad, even if the individual is a beneficiary.