Tax Facts

Tax Facts

COMPANIES

Tax residency
A company is tax resident in Cyprus if:

  • it is managed and controlled from Cyprus; or
  • it is registered in Cyprus, but it is managed and controlled from outside of Cyprus, as long as the company is not considered a tax resident of any other country (applicable from 31 December 2022)

Income Tax
The corporate income tax rate is 12.5% on net profits.

Exemptions
The following income is exempt from corporate income tax:

  • Profits from the sale or trade of securities or qualifying assets
  • Dividend income. The exemption does not apply to the extent that dividends are deductible from the taxable income of the non-resident company which pays the dividend.
  • Interest income (excluding income arising from the ordinary course of the business)

Tax Losses Carried Forward
Tax losses which cannot be set off against income in the current year may be carried forward and set off against future profits for a period of five years. Alternatively, the current year losses of a company can be set off against the current year profits of another Cyprus tax resident company. A group company which is a tax resident in another EU country can also surrender current year tax losses to ac Cyprus tax resident company, if it firstly exhausts all possibilities of utilising its tax losses in its country of residence.
For tax relief purposes, a group is defined as: two companies which are linked with a link of more than 75% (i.e., either one company owning at least 75% of the shares of another company or at least 75% of the voting shares of both companies are held by the same company).

Restructuring and Reorganisations

Assets may be transferred between companies without any tax liabilities in the case of reorganisations. Reorganisations include mergers, demergers, transfer of assets and partial divisions.

 

INDIVIDUALS

Tax residency
An individual who spends 183 days or more in Cyprus during the calendar year, is considered a Cyprus tax resident. In addition, the 60 days rule results in tax residency provided that:

  • the individual does not reside in any other single state for a period exceeding 183 days in aggregate
  • is not tax resident in any other state
  • spends at least 60 days in Cyprus
  • carries on a business in Cyprus and/or is employed in Cyprus and/or is a director of a company during the tax year, provided that the business/ employment is not terminated during the tax year.
  • maintains a permanent home in Cyprus that is either owned or rented

Non-domiciled Cyprus tax residents
Non-domiciled Cyprus tax residents enjoy the following benefits for the next 17 years:

  • no Cyprus tax is payable on worldwide dividend income
  • no Cyprus tax is payable on worldwide interest income
  • no Special Defence Contribution tax is payable on rental income (however it is taxable under personal tax)

GHS (General Health Service) tax at 2.65% will be applicable on the above income (capped at €180.000 total income).

Income tax
When an individual is a resident in Cyprus, tax is imposed on worldwide income. Where an individual is not resident in Cyprus, tax is imposed on income accruing or arising only from sources within Cyprus.

Personal Income Tax rates:

€0 – €19.500@ 0%
€19.500 – €28.000@ 20%
€28.000 – €36.300@ 25%
€36.300 – €60.000@ 30%
> €60.000@ 35%

Taxation of emoluments of Expatriate Individuals

50% tax exemption
Prior to the amendment of the Income Tax Law, Article 8(23) provided for a 50% tax exemption of the remuneration for employees earning over €100.000. The exemption applied for ten years starting from the year of employment.

Further to the amendment of the law, Article 8(23) will only apply for employment which commenced up to 26th of July 22.
The new Article 8(23)A provides for a 50% tax exemption on remuneration from employment in Cyprus for employees earning over €55.000, who were not residents of Cyprus for at least 15 consecutive years prior to commencement of employment, where the employment in Cyprus commences from 1st of January 2022.
The exemption under section 8(23)A

  • applies for 17 tax years, commencing from the year of employment in Cyprus
  • applies for any year that the remuneration exceeds €55.000, irrespective of whether the remuneration falls below €55.000 in any tax year, provided that the remuneration during the first and second year of employment exceeds €55.000 and the Commissioner of Taxation is satisfied that the fluctuation in the annual remuneration is not intentional to benefit from the exemption.
  • applies from the tax year of commencement of the first employment in Cyprus, provided that the said remuneration during the first 12 months and during the last tax year of employment in Cyprus (or the end of the 17-year period) exceeds €55.000

Irrespective of the year of commencement of employment in Cyprus, the provisions of Article 8(23)A shall apply from 1st of January 2022 until the completion of the 17 consecutive tax years, commencing from the tax year in which the employment begins, for individuals who were not residents of Cyprus for at least 15 consecutive years prior to commencement of employment and:

  • were already benefitting from the 50% exemption under Article 8(23) and had continuous employment in Cyprus from the year of commencement up to 2021, or
  • the first employment commenced between 2016 and 2021 and the annual remuneration exceeded €55.000, or
  • the first employment commenced between 2016 and 2021 and the annual remuneration did not exceed €55.000, and within 6 months from 26th of July 2022 the said remuneration exceeds €55.000

In cases where the 50% exemption is granted under Article 8(23)A, the exemption under Articles 8(21), 8(21)A and 8(23) is not granted.

20% tax exemption
Prior to the amendment of the Income Tax Law, Article 8(21) provided a 20% tax exemption of the remuneration or €8.550 (whichever is the lowest). The exemption applied for five years starting from the tax year following the year of employment, during or after 2012.

Further to the amendment of the law, Article 8(21) will only apply for employment which commenced up to 26th of July 22.
The new Article 8(21)A provides for a 20% tax exemption or €8.550 (whichever is the lowest) for individuals commencing their first employment in Cyprus after 26th of July and up to 2027, who were not tax resident of Cyprus for at least 3 consecutive years immediately prior to commencement of first employment in Cyprus and must have been employed outside Cyprus by a non-resident employer.
The exemption under section 8(21)A applies for 7 tax years, starting from the tax year following the year of commencement of employment in Cyprus.

Benefits

  • Loans/ financial assistance given by a company to a director, shareholder or relative up to second degree is considered a monthly benefit equal to 9% per annum on the amount received. This benefit is taxable under income tax.
  • Benefits provided to an individual, cash or otherwise, are subject to income tax.

Personal Tax Allowances
The following contributions are deductible from the taxable income of an individual. The total contributions are limited to 1/5 of the net taxable income before the allowances:

  • Social insurance contributions
  • General Healthcare System contributions
  • Approved Provident and pension fund contributions
  • Life insurance premiums
  • Contributions to medical funds
 

SPECIAL DEFENCE CONTRIBUTION (SDC)

Both Cyprus tax resident companies and Cyprus domiciled tax resident individuals are subject to SDC on the below income. Non-domiciled tax residents are exempt from SDC.

  • Dividend income- 17%
  • Interest income – 17% (with effect from 1/1/24 the SDC on interest income has been reduced from 30% to 17%)
  • Rental income less 25%- 3%

Dividends
The following dividend income is exempt from SDC

  • Dividends received by a Cyprus tax resident company from another Cyprus tax resident company in most cases)
  • Dividends received by a Cyprus tax resident company from a company which is not a Cyprus tax resident. This exemption does not apply if:
    • More than 50% of the activities of the non-resident company which pays the dividends lead to investment income and
    • The foreign tax burden on the income of the company paying the dividend is substantially lower than the tax burden of the Cyprus tax resident company

Deemed Distribution
A company resident in the Republic is deemed to have distributed 70% of its profits after tax in the form of dividends at the end of the second year from the end of the tax year in which such profits were generated. The amount of deemed dividend is subject to SDC at 17% to the extent that the ultimate shareholders are Cyprus domiciled tax residents.

Interest income
Interest income which is the result of the carrying on of the ordinary course of a business is exempt from SDC.

EXPLOITATION OF INTELLECTUAL PROPERTY (IP)

Under the new IP Box Regime, based on the “Nexus Approach”, in calculating the taxable profit an 80% deemed deduction applies to the profits from the exploitation of qualifying intangible assets. If a loss arises when calculating the qualifying profits only 20% of this loss may be carried forward.

CAPITAL GAINS TAX

Capital gains arising from the disposal of immovable property situated in Cyprus as well as capital gains from the disposal of shares in a company which holds immovable property in Cyprus, are taxed under capital gains tax at the rate of 20%. Certain exemptions and lifetime allowances are available.

LEVY OF 0.4% ON IMMOVABLE PROPERTY DISPOSALS IN CYPRUS

As from 22 February 2021 a levy of 0.4% is imposed in the following circumstances:

  • On the sale of immovable property, for which a general value has been determined by the Department of Lands and Surveys, the seller will pay 0.4% levy on the sales proceeds
  • On the sale of shares of a company, which is not listed on a recognized Stock Exchange, and which directly or indirectly owns immovable for which a general value has been determined by the Department of Lands and Surveys, the seller will pay 0.4% levy on the latest valuation of the immovable property by the Department of Lands and Surveys, corresponding to the shares of the company which are being sold

SHIPPING COMPANIES

In cases where a shipping company incorporated in Cyprus owns ships which operate under the Cyprus flag and the operations take place in international waters, no liability for corporation tax arises on profits or any dividends distributed.

DOUBLE TAXATION TREATIES

Cyprus has an extensive network of Double Taxation Treaties with several countries across the world. When tax is imposed on the Cyprus company in the treaty partner’s country, that amount is deducted as a credit against the tax liability arising in Cyprus for the same income. A comprehensive  list  can be found of the Ministry of Finance’s website.