Cyprus Tax System: A Detailed Guide For 2021

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Cyprus Tax System

The Cyprus tax system is one of the most appealing systems within Europe. It provides excellent benefits for investment with its low Corporation Tax and Double Tax Treaty as well as its tax deductions for investment into startups. It is easy to understand why the Cyprus Tax System helps welcome so many investors to the island especially as it is a member of the European Union, meaning investors are offered access to all EU Tax Directives.

With any subject regarding tax, especially specialized tax, you should always seek advice from your financial adviser as they will be able to provide personalized information. However, we will give you a basic guide to the Cyprus tax system with data, indicators and statistics.

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Personal Income Tax Rates

The Cyprus tax system works with Personal Income Tax using the following method: An individual who is tax resident in the Cyprus is taxed on income accruing or arising from sources both within and outside Cyprus. An individual, who is not tax resident in Cyprus, is only taxed on income accruing or arising from sources within Cyprus.

Taxable Income €

Tax Rate %

Tax €

Cumulative Tax €

0 – 19.500

0

  

19.501 – 28.000

20

1.700

1.700

28.001 – 36.300

25

2.075

3.775

36.301 – 60.000

30

7.110

10.885

Over 60.000

35

  

Tax Residency

An individual who spends more than 183 days in a tax year (1st January to 31st December) in Cyprus is a tax resident of Cyprus and will constitute for tax residency for an individual. An individual can be deemed to be a tax resident of Cyprus if they spend less than 183 days in Cyprus and they satisfy certain conditions. These conditions are as followed; He or she does not spend more than 183 days in any other country, is a not a tax resident of any other country, spends at least 60 days in Cyprus, Maintains a permanent home in Cyprus that is either owned or rented and Carries on a business in Cyprus, is employed in Cyprus or holds an office (Director) in Cyprus at any time during the tax year.

Exemptions

Certain income is exempt from income tax in Cyprus. This includes, but is not limited to, dividend income and interest income unless the income arises in the ordinary course of the business. Both these types of income are wholly exempt from personal income tax.

Cyprus Tax System: Capital Gains Tax

Capital Gains Tax is currently charged at a rate of 20% on the following:

  • Gains from the disposal of immovable property situated in Cyprus
  • Gains from the disposal of shares of companies not listed on a recognised stock exchange which own immovable property situated in Cyprus
  • Gains from the disposal of shares of companies which indirectly own immovable property situated in Cyprus and derive at least 50% of their market value from such immovable property

The following are deducted from the sale proceeds in calculating the capital gain:

  • The value of the immovable property as at 1 January 1980 or cost of the immovable property if the date of acquisition is later, as adjusted for inflation
  • The cost of any accepted capital additions and improvements as adjusted for inflation
  • Expenditure incurred solely in respect of the gain (e.g. transfer fees, approved real estate agent commission, interest expense)

Exemptions

Under the law, there are certain disposals which are not subject to Capital Gains Tax. These include transfers arising on death and gifts made from parent to child or between spouses as well as between up to third degree relatives.

Allowances

Individuals are entitled to lifetime allowances such as the disposal of principal private residence (subject to conditions) €85.430 and disposal of agricultural land by a farmer €25.629 as well as other disposals €17.086

Reducing your Capital Gains Tax Liability

There are perfectly legal ways of reducing your Capital Gains Tax liability.  These include but are not limited to:

  • Capital losses may be used to offset a capital gain
  • If you are selling your property partly or fully furnished, come to an arrangement with your buyer whereby they purchase any furniture, etc. using a separate agreement. This will reduce your Capital Gains Tax liability as the items included in the agreement should not be liable for Capital Gains Tax

Corporation Tax

In the Cyprus tax system, the corporate tax rate is 12.5%; this is one of the lowest corporate tax rates in the European Union which is why so many investors favour Cyprus.

Tax Residency

A company is tax resident in Cyprus if the company is managed and controlled from Cyprus. A company that is tax resident in Cyprus will be taxed on all income from sources from within and outside Cyprus. A company that is not tax resident in Cyprus will be taxed on income from sources within Cyprus.

Exemptions

There are several sources of income that are exempt from income tax. These include dividend income and interest income provided it does not occur as a result of the ordinary operations of the business.

Deductible Expenses

All expenses incurred during business operations are deductible when calculating tax liability of a company. Expenses are deductible at different rates depending upon the expense type. Your financial advisor is best placed to ensure the company maximizes tax efficiency.
Cyprus-Tax-System-02

Double Tax Treaty

When an individual or business invests in a foreign country, the issue of which country should tax the investor’s earnings arises. Countries therefore sign Double Tax Treaties, also known as Double Tax Agreements, with each other to sort out these and other questions. A key aim of these agreements is to prevent the same income being taxed twice, so called double taxation.
Cyprus has this agreement with 65 nations, again you can understand why the Cyprus tax system is so attractive to investors.

Click here to see whom Cyprus has Double Tax Treaties with

Intellectual Property

Intellectual Property (IP) can be one of the most valuable assets of an organization. Cyprus tax system offers a tax efficient European Union location together with being able to safeguard and protect IP.

The IP tax regime covers a wide range of intangibles including copyrights e.g. sound recordings, films, publications, software programs, literary works as well as trademarks and patented inventions.

Tax Benefits of Cypriot Resident IP Companies

  • 80% of worldwide royalty income generated from IP (net of direct expenses) is exempt from tax
  • 80% of profit generated from the disposal of IP (net of direct expenses) is exempt from tax
  • Any capital expenditure for the acquisition or development of IP is claimed as a tax deduction is claimed as a tax deduction in the year in which was incurred and for the following 4 years on a straight-line basis

Value Added Tax

Value Added Tax (VAT) is imposed on the supply of all goods and services in Cyprus and on the acquisition of goods from other members of the European Union and on the importation of goods from third countries.

RateVAT %Example
Standard rate19%All goods & services that don’t fall into any of the other categories
Reduced Rate9%Hotel accommodation, catering services
Reduced rate5%Books, magazines, newspapers, use of sporting facilities
Zero rate0%Services relating to imports, exports
Exempt from VAT Supplies in the public interest e.g. ambulance, postal service

Related: What Makes Cyprus An Attractive Investment Market

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