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:
The following are exempt from income tax:
The following are deducted from income:
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:
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:
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.
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
• 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%
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