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Cyprus Information > Income Tax in Cyprus

Income Tax in Cyprus

SUMMARY OF TAX BENEFITS

The favorable provisions of the Cyprus tax legislation as well as the wide network of double taxation treaties make the Cyprus holding company ideal for international tax planning purposes. The main advantages of the Cyprus tax system are summarized below:

  • 12.5% uniform corporate tax on trading profits;

  • Dividend income received from abroad is exempt (subject to conditions);

  • No thin capitalisation rules;

  • Capital gains from the sale of immovable property situated outside Cyprus is tax exempt;

  • Taxable losses carried forward indefinitely;

  • Capital gains on sale of qualified Securities: 100% exemption;

  • No withholding tax on outward payments (Dividends-Interest-Royalties) to non Cyprus tax residents (companies or individuals);

  • Foreign Permanent Establishment profits exempt (subject to conditions);

  • Tax free corporate re-domiciliation permitted;

  • Possibility for establishing an SE (European Company);

  • Applicability of all EU directives;

  • Advance ruling practice exists;

  • Extensive Double Tax Treaty network;

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There are several serviced offices offering facilities both in Nicosia and Limassol towns. High tech fully equipped office buildings with qualified personnel and top amenities are available.

CORPORATE TAX PROVISIONS

Tax Residency
A company is considered to be tax resident in Cyprus if its management and control is exercised in Cyprus. The Cyprus tax authorities normally assume that a company having its majority of board members, statutory seat and board meetings in Cyprus is considered to be managed and controlled in Cyprus.

Corporate Tax
Trading profits are taxed at the rate of twelve and a half percent (12.5%), which is the lowest corporate income tax rate in Europe.

Interest Income
Active interest income (interest income effectively connected with the carrying on of a trade or business of the company) is subject to the corporate income tax rate of 12.5% as regular trading income after the deduction of any relevant expenses.

Passive interest income, (income not connected to a trade or business), is exempt from corporate income tax purposes but taxed at the level of the Special Contribution for Defence (SCD) at 30% on a gross basis.

 

PERSONAL INCOME TAX

Residence
The Cyprus Income Tax Law defines a “resident in the Republic”, when applied to an individual, to being an individual who stays in the Republic for a period or periods exceeding in aggregate 183 days in the year of assessment. A “nonresident or resident outside the Republic” will be construed accordingly.

Resident persons will be charged to tax on their worldwide income.

Non-resident persons will be charged to tax on their income accruing or arising in respect of:

  • Income from any trade, business, profession or vocation carried on or exercised as far as attributable to a permanent establishment in Cyprus;

  • Profits or other benefits from any office or employment exercised in Cyprus;

  • Any pension as a result from a past employment exercised in Cyprus with the exception of any pension paid out of funds created by the Government or a local authority;

  • Rents from property situated in Cyprus;

  • Trade Goodwill from sources within Cyprus.

Rates of Tax
The Income Tax rates for individuals are progressive as seen from the table below:

Chargeable
Income
EUR
Rate of Tax
%
Cumulative
Tax
EUR
Up to – 19,500 Nil Nil
19,501 – 28,000 20 1700
28,001 – 36,300 25 2075
Over – 36,301 30  

Salaried income
In addition to remuneration in cash, virtually all benefits in kind received by an employee for work or services rendered constitute taxable income and subject to the progressive tax rates indicated above. However, 20 percent of the emoluments from any employment which is exercised in Cyprus by an individual not resident in Cyprus before taking up employment in Cyprus or EUR 8.543 whichever is the lowest are exempt from income tax. This exemption applies for a period of three (3) years commencing from 1st January of the year following the year of commencement of such employment.

Remuneration derived from the rendering of salaried services outside Cyprus to a nonresident employer or to a permanent establishment situated outside Cyprus of a resident employer for a total aggregate period in the year of assessment of more than 90 days will be exempted from tax.

Rental Income
Income, earned by a Cyprus tax resident individual, arising from the rental of immovable property which is situated in Cyprus is taxable both under the Cyprus Income Tax and the Special Contribution Tax legislation as follows:

  1. Corporate Income Tax
    80% of the rental income derived by the client from the rental of the immovable property which is situated in Cyprus (reduced by the wear and tear allowance plus any interest expenses suffered towards the acquisition of the property) will be included in his/her personal income and subject to the progressive personal income tax rates illustrated above.

  2. Special Contribution Tax
    Under the Special Contribution tax, an amount of twenty five percent (25%) is deducted from the gross amount of rental income. After such deduction has been effected, the remaining gross amount is subject to special contribution tax at a rate of three percent (3%).

Interest income
The total interest income derived by a Cyprus tax resident individual will be exempt from corporate income tax. However the gross interest received or credited will be subject to Special Contribution for the Defence tax at the rate of 30 percent.

Foreign pensions
Foreign pensions in respect of services rendered abroad are tax free in respect of the first EUR 3,417, thereafter are taxed at a flat rate of 5 percent. Alternatively, if it is to the recipients benefit, he/she may exercise the option every year to be taxed at the normal rates.

Wealth Taxes
Cyprus imposes no tax on wealth.

Double taxation treaties
Double taxation treaties are made in order to avoid paying income tax in two countries. This gives the option to the citizen of the countries to take advantage of the low rate of tax in Cyprus. Countries that Cyprus has double taxation treaties are: (many other countries are under negotiations).

United Kingdom - United States - Austria - Bulgaria - Canada - China - Chech Republic - Denmark - Egypt-France - Germany - Greece - Hungary - India - Ireland - Italy-Kuwait - Malta - Norway - Poland - Romania - Russia - [including Armenia, Belarus, Kurdistan, Moldova, Tajikistan, Turkmenistan and Ukraine]. Slovakia-South Africa-Sweden-Syria-Yugoslavia [Serbia-Montenegro].

 

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