Income tax in Cyprus is based on the principle of "tax residence".
A company is resident in Cyprus for tax purposes if its management and control are exercised in Cyprus. An individual is resident in Cyprus for tax purposes, if he/she resides therein for a period or more which in aggregate exceed 183 days in the same tax year.
Cyprus tax residents are liable to tax in respect of worldwide income. Non Cyprus tax residents are liable to tax in respect of Cyprus source income only.
Non Cyprus tax residents having a permanent establishment in Cyprus may opt, if it is to their benefit, to be taxed as Cyprus tax residents.
Subject to certain exceptions, Cyprus tax residents are subject to special contribution for the defence in respect of their income in the form of dividends at the rate of 20% (1/1/2012-31/12/2013) and 17% from 1/1/2014, interest at the rate of 15% (3% for certain types of interest income) and rentals at the rate 3%.
The following income is, inter alia, exempt from income tax:
- the whole interest income (except interest income generated from the ordinary activities of a business, including interest which is closely connected with the ordinary activities of a business)
- Profits of a permanent establishment abroad, subject to certain conditions
- Lump sum received by way of retiring gratuity
- Capital sums accruing to individuals in relation to approved life insurance policies, as well as approved provident funds or approved pension funds
- Profits from the disposal of titles
- The remuneration from the rendering outside Cyprus of salaried services for a total aggregate period in the year of assessment of more than 90 days, to an employer not resident in Cyprus or to a permanent establishment outside Cyprus belonging to an employer resident in Cyprus
- €8.550 or 20%, whichever is the lowest, of the remuneration from the provision of salaried services in Cyprus by an individual who was resident in Cyprus before the commencement of the employment in Cyprus. The exemption applies for 3 years, beginning on the 1st of January of the year following the year in which the employment commenced.
- 50% of salaried income earned from any employment in Cyprus, by an individual who was tax resident abroad before the commencement of employment. The exemption applies for 5 years beginning in the year of employment, provided the said income exceeds €100.000 per annum.
- Certain types of pensions and benefits
- The income arising from a scholarship or other similar educational endowment, subject to certain conditions.
- Lump sum received by way of retiring gratuity, lump sum received in relation to approved life insurance policies, interest income, widows´ s pensions and dividend income are some of the types of income that are tax exempt.
- Pensions for services offered abroad may, if the taxpayer so opts, be taxed separately at the rate of 5%, for amounts exceeding €3.420.
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If you are not resident in Cyprus for tax purposes, you only pay tax in Cyprus in respect of income earned from sources in Cyprus.
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Special contribution for the defence is imposed on income earned by Cyprus tax residents (individuals and companies) in the form of dividends, interest and rentals.
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- Immovable property in Cyprus is subject to immovable property tax on the market value of the property as at 1 January 1980, in accordance with the Lands and Surveys Department General Valuation.
The tax exempt amount for the tax year 2013 is €12.500.
Please refer to the website of the Inland Revenue Department for information relating to the submission of the relevant tax returns and the tax payment procedures.
- Capital gains tax is levied at the rate of 20% on gains arising from the disposal of immovable property situated in Cyprus or from the disposal of shares of companies (excluding companies listed on a recognised Stock Exchange), the assets of which consist of immovable property situated in Cyprus. Gains that are exempt from capital gains tax include, inter alia, gains arising in the context of company reorganizations, gains from the disposal of shares of companies listed on a recognised Stock Exchange and the gain from the disposal of a principal dwelling house, up to an amount of €85.430.
The tax deductions granted, subject to ceratin conditions, include:
- premiums paid in respect of approved life insurance policies
- premiums paid in respect of the General Health Scheme and other approved medical schemes
- Donations for cultural, educational or other charitable purposes to the Republic of Cyprus, a local authority or approved charitable institutions
- Amounts expended towards the maintenance of a building for which a Preservation Order is in force or the maintenance, preservation or restoration of an ancient monument.
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The rate of corporation tax imposed is 12.5%.
- The avoidance of double taxation in respect of income from abroad is effected by way of a tax credit granted of the foreign tax against the Cyprus tax, in accordance with any double tax agreement in force.
The avoidance of double taxation may also be effected by way of a unilateral relief, which is granted in case there is no double tax agreement in force.
More information may be obtained from the website of the Department of Inland Revenue www.mof.gov.cy/ird
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