Individual taxation | Tech Island

Basis of Taxation

Individuals who are tax residents in Cyprus are taxed on their worldwide income, i.e. on all income accrued or derived from all sources in Cyprus and overseas, regardless of whether this income is actually transferred to Cyprus or not.

Tax resident individuals whose domicile is not in Cyprus are exempt from the Special Defense Contribution - this is kind of taxation applies to dividend income, ‘passive’ interest income and rental income from sources in Cyprus and abroad. Foreign nationals coming to live and work in Cyprus are expected to fall within this category.

Significant tax exemptions apply on income from employment of foreign individuals who take up residency in Cyprus.

Tax residence of an individual in accordance with Cypriot tax legislation

An individual is considered a tax resident of Cyprus if he/she spends more than 183 days in any calendar year (same as the tax year) in Cyprus.

A second tax residency test - otherwise known as the “60-day rule” - was introduced for the use of all tax residents and has been in effect since 1 January 2017. Therefore, from 1 January 2017 onwards, an individual is considered a tax resident of Cyprus if he / she satisfies either the “183 day rule” and/or the new “60-day rule” for the tax year.

Personal Income Tax Rates

The following income tax rates apply to individuals:

Chargeable Income for the Tax Year	Tax Rate	Accumulated Tax
Euro (€)	%	Euro (€)
0 - 19.500	nil	nil
19.501 – 28.000	20%	1,700
28.001 – 36.300	25%	3,775
36.301 – 60.000	30%	10,885
Over 60.000	35%

Exemptions

The following are exempt from income tax:

Type of income	Exemption
Interest, except for interest arising from the business' ordinaryactivities or closely related to its ordinary business activities of an individual	The whole amount
Dividends	The whole amount* (Such dividend and interest income may be subject to Special Contribution for Defence - refer to the Special Contribution for Defence section)
Remuneration for first employments exercised in Cyprus commencing as from 1 January 2022 with remuneration exceeding EUR55.000 by individuals who were not residents of Cyprus for a period of 10 consecutive tax years immediately prior to the year of commencement of the employment in Cyprus. For each individual, the exemption will apply once in their lifetime for a period of 17 years. Subject to certain conditions, individuals whose employment commenced prior to 1 January 2022 may also be eligible to claim the exemption.	50% of the remuneration
Remuneration for first employments exercised in Cyprus commencing after 26 July 2022, by individuals who immediately prior to the commencement of their employment in Cyprus were not a resident of Cyprus for a period of at least 3 consecutive tax years and were employed outside of Cyprus by a nonresident employer. For each individual, the exemption will apply for a period of 7 years, starting from the tax year following the tax year of commencement of employment. Individuals granted the above 50% exemption will not be eligible for this exemption.* (Individuals that were eligible to claim the 20% or 50% exemptions that applied pre-1 January 2022 may continue to claim the said exemption for any remaining period if they are not eligible to claim the exemption for employments commencing from 1 January 2022. The 20% and 50% exemptions that applied pre-1 January 2022 were available for a total period of 5 or 10 years, respectively, for each individual.)	20% of the remuneration with a maximum amount of €8.550 annually
Remuneration from salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus resident employer or a foreign permanent establishment of a Cyprus resident employer	The whole amount
Profits of a foreign permanent establishment under certain conditions	The whole amount
Lump sum received by way of retiring gratuity, commutation of pension or compensation for death or injuries	The whole amount
Capital sums accruing to individuals from any payments to approved funds (e.g. provident funds)	The whole amount
Profits from the sale of securities	The whole amount
Profits from the production of films, series and other related audiovisual programs	The lower of 35% of the eligible expenditure and 50% of the taxable income. Any restriction may be carried forward for 5 years.

Tax Deductions

The following are deducted from income:

Type of Deduction	Allowable Income
Contributions to trade unions or professional bodies	The whole amount
Loss of current year and previous years (for individuals required to prepare audited financial statements, current year losses and losses of the previous five years only may be deducted)	The whole amount
Rental Income	20% of rental income (for income tax purposes)
Donations to approved charities (with receipts)	The whole amount
Expenditure incurred for the maintenance of a building in respect of which there is in force a Preservation Order	Up to €1.200, €1.100 or €700 per square meter (depending on the size of the building)
Social Insurance, medical fund (maximum 1,5% of remuneration), pension and provident fund contributions (maximum 10% of remuneration) and life insurance premiums (maximum 7% of the insured amount)	Up to 1/5 of the chargeable income
Amount invested each tax year as from 1 January 2017 in approved innovative small and medium-sized enterprises, either directly or indirectly subject to conditions (applicable up to 31 December 2023).	Up to 50% of the taxable income as calculated prior to this deduction (subject to a maximum of €150.000 per year)
Eligible infrastructure and technological equipment expenditure in the audiovisual industry	20%
Expenditure of revenue nature for scientific research and for R&D, subject to conditions	The whole amount (and for expenditure incurred in years 2022, 2023 and 2024, an additional 20%)
Tax amortisation on any expenditure of a capital nature for scientific research and for R&D, subject to conditions	The whole amount (and for expenditure incurred in years 2022, 2023 and 2024, an additional 20%) allocated over the lifetime of the asset (maximum period 20 years)

Special Defense Contribution (‘SDC’)

Special Contribution for Defence is imposed on dividend income, ‘passive’ interest income and rental income earned by companies tax resident in Cyprus and by individuals who are both Cyprus tax resident and Cyprus domiciled. It is charged at the rates shown in the table below:

Type of Income	Tax Rate
Dividend income from Cyprus and non-Cyprus tax resident companies	17%
Interest income arising from the bussiness' ordinary activities or closely related to its ordinary activities	Nil
Other interest income (“passive”)	30%
Rental income (reduced by 25%)	3%

General Health Care System

As per the General Health System Law of 2001 (89(I)/2001 as amended in 2017, a general health system was introduced in Cyprus aiming to provide to the population with equal access to a holistic healthcare system. Patients will have the option to select a healthcare provider from the private as well as the public healthcare sector.

Contributions relating to the implementation of the General Health System (NHS) started on 1 March 2019, and the current rates are as per the table below:

Reference	Category	Applied On	Rate
(i)	Employees	Own emoluments	2,65%
(ii)	Employers	Employee’s emoluments	2,90%
(iii)	Self Employed	Own income	4,00%
(iv)	Pensioners	Pension	2,65%
(v)	Persons Holding Office	Officer’s Remuneration	2,65%
(vi)	The Republic of Cyprus or Natural / Legal Person responsible for the remuneration of persons holding an office	Officers’ Remuneration	2,90%
(vii)	Persons earning rental, interest, dividend and other income	Rental, Interest, Dividend Income etc	2,65%
(viii)	Republic’s Consolidated Fund (Πάγιο Ταμείο της Δημοκρατίας)	Emoluments / Pensions / Persons (i), (iii) (iv) & (v)	4,70%

Other Taxes

Capital Gains Tax (CGT) is imposed (where the disposal is not subject to income tax) at the rate of 20% on gains from the disposal of immovable property situated in Cyprus, including gains from the disposal of shares in companies which directly own such immovable property. Further, as from 17 December 2015, shares of companies which indirectly own immovable property located in Cyprus and at least 50% of the market value of the said shares derive from such immovable property are subject to Capital Gains Tax. In the case of share disposals, only that part of the gain relating to the immovable property situated in Cyprus is subject to CGT. Disposal for the purposes of CGT specifically includes; exchange, leasing, gifting, abandoning the use of right, granting a right to purchase, and any sums received upon cancellation of disposals of property. Shares listed on any recognised stock exchange are excluded from these provisions.

Exemptions

The following disposals of immovable property are not subject to CGT:

• Subject to conditions, land as well as land with buildings, acquired at market value (excluding exchanges, donations, and foreclosures) from unrelated parties in the period 16 July 2015 up to 31 December 2016 will be exempt from CGT upon their future disposal.

• Transfers arising on death

• Gifts made from parent to child or between husband and wife or between up to third-degree relatives

• Gifts to a company where the company’s shareholders are members of the donor’s family and the shareholders continue to be members of the family for five years after the day of the transfer

• Gifts by a family company to its shareholders, provided the company originally acquired such property by way of gift The property must be kept by the donee for at least three years

• Gifts to charities and the Government

• Transfers as a result of reorganisations

• Exchange or disposal of immovable property under the Agricultural Land (Consolidation) Laws

• Expropriations

• Exchange of properties, to the extent that the gain made on the exchange has been used to acquire the new property. The gain that is not taxable is deducted from the cost of the new property, i.e. the payment of tax is deferred until the disposal of the new property

• Donations to a political party

Social insurance and other contributions

Individuals working in Cyprus, either employed or self-employed, are required to contribute to the social insurance scheme subject to certain exemptions. As from 1 January 2019, the rate of 8,3% applies to both the employer and the employee.

As from 1 January 2019, the contributions of self-employed persons are 15,6% of their income (14,6% for 2014-2018). Thereafter, the rate will increase by 1% every five years until it reaches 19,6% as from 1 January 2039. The amount of the contributions is subject to a lower and a maximum limit, depending on the profession or trade of the Self-Employed Person. These limits are set on an annual basis.

Estate duty, wealth tax and inheritance tax

There is no gift tax, estate duty, wealth tax or inheritance tax in Cyprus.

Value Added Tax (VAT)

VAT is imposed on the supply of goods and provision of services in Cyprus, as well as on the acquisition of goods from the EU and the importation of goods into Cyprus. Taxable persons charge VAT on their taxable supplies (output tax) and are charged VAT on goods or services which they receive (input tax). If the output tax in a VAT period exceeds total input tax, a payment has to be made to the state. If input tax exceeds the output tax, the excess input tax is carried forward as a credit and set off against future output VAT.

The legislation provides for the following VAT rates:

• Zero rate (0%)

• Reduced rate of five per cent (5%)

• Reduced rate of nine per cent (9%)

• Standard rate 19%

Exemptions

Certain goods or services are exempt from VAT. They include:

• leasing of buildings used for residence

• most banking, financial services and insurance services;

• most hospital, medical and dental care services;

• certain cultural, educational, and sports activities;

• supplies of buildings, subject to conditions;

• postal services provided by the national postal authority;

• lottery tickets and betting coupons for football and horse racing;

• management services provided to mutual funds