Taxes in Cyprus

Personal income tax in Cyprus

The amount of tax-related expenses depends on the taxpayer's status.

For residents of the country, all of an individual's income is subject to taxation (the calculation also takes into account profit received from sources outside the country).

For residents, personal income tax in Cyprus is levied on profit earned within the country.

Cyprus's tax system is progressive. This means the rate increases as a person's annual income increases:

• 9,501 to 28,000 euros - 20% rate;
• 28,000 to 36,300 euros - 25%;
• 36,301 to 60,000 euros - 30%;
• above 60,000 - 35%.

Income below 9,500 euros is not taxed. These are not the only advantages of the current system in Cyprus. For example, income received in the form of dividends, interest, or foreign exchange gains is not taken into account when calculating the tax base.

Corporate income tax

Cyprus has the lowest corporate income tax rate in the European Union. Today this rate stands at 12.5%.

It is important to note that companies whose management and control is carried out within the country are automatically recognized as Cyprus tax residents. Accordingly, they must pay income tax on their entire worldwide income.

Taxes for legal entities in Cyprus do not take into account income from the sale of securities. In addition, business-related expenses, contributions to funds, and depreciation are excluded from the tax base calculation.

Capital gains tax

This is the tax levied on income earned from the sale of capital assets such as shares or real estate. Capital gain is the difference between the sale price of an asset and its purchase cost. A positive difference is considered a capital gain. A rate of 20% is charged on this amount for both individuals and legal entities.

Capital gains tax does not need to be paid on the gifting or bequeathing of shares and real estate, nor on the division of spouses' property when a divorce is finalized through the courts.

Value added tax

VAT is paid by individuals and legal entities that provide services or sell goods within Cyprus, and that purchase and sell goods outside the country.

The standard VAT rate is 19%. In some cases, reduced rates of 9% and 5% apply (this concerns transport services and the sale of pharmaceutical products, food, and printed materials).

Defence contribution

The defence contribution is paid exclusively by residents of the Republic who hold domicile status. This status is held by people born in Cyprus, those who have chosen the island as their permanent place of residence, and owners of real estate.

The size of the defence contribution depends on the taxpayer's income category:

• rental income is taxed at a rate of 2.25%;
• dividend income - 17%;
• profit from passive activity - 30%.

Taxes for non-residents do not include the defence contribution.

Social insurance

These contributions in Cyprus are paid by employers and officially employed workers.

The first category of taxpayers must pay the following contributions for each employee every month:

• Social Insurance Fund - 8.3% (the rate increases by 0.5% every 5 years);
• Holiday Fund - 8%;
• Redundancy Fund - 1.2%;
• Industrial Training Fund - 0.5%;
• healthcare fund - 2.9%.

Employees must pay social insurance contributions of 8.3% and general healthcare contributions of 2.65% out of their own income.

General healthcare system

Contributions to the healthcare system must be paid by all legal entities and entrepreneurs, as well as citizens who earn income. The tax rate depends on the category of individual:

• employees - 2.65%;
• employers - 2.9%;
• self-employed and sole proprietors - 4%;
• pensioners - 2.75%;
• landlords - 2.65%.

It is important to note that the maximum total income amount from which contributions to the General Healthcare System Fund are deducted is 180,000 euros.

Tax calendar

Administrative liability is provided for late payment of taxes in Cyprus: 17 euros for each day of delay. To meet the established deadlines precisely, individuals and legal entities need to keep a tax calendar.

• At the end of each month, healthcare and social insurance contributions are paid.

• January 31: the declaration on the deemed distribution of dividends is filed and the defence contribution is paid.
• March 31: the declaration of income received for the previous year is filed electronically.
• May 31: employers submit declarations on wages for the previous reporting period.
• July 31: two declarations are filed - a provisional one on income tax for the current year, and one on personal income tax for the previous period.
• August 1: the final amount of income tax for the previous year and personal income tax for the same period is paid.
• December 31: the tax return for the current period is filed, and the defence contribution accrued for the last six months of the current year is paid.

Employers pay insurance premium tax in three installments: April 30, August 31, and December 31.

Taxation in Cyprus is flexible and progressive. However, those without sufficient legal knowledge are advised to consult licensed tax advisors. Even unintentional concealment of a taxable item can lead to serious consequences: the taxpayer would have to pay the tax at triple the amount, plus a fine of 3,417 euros.