Basis of taxation

All Cyprus tax resident individuals are taxed on all chargeable income accrued or derived from all sources in Cyprus and abroad. Individuals who are not tax residents of Cyprus are taxed on certain income accrued or derived from sources in Cyprus.

An individual is tax resident in Cyprus if he spends in Cyprus more than 183 days in any one calendar year.

Days in and out of Cyprus are calculated as follows:

  • the day of departure from Cyprus counts as a day of residence outside Cyprus
  • the day of arrival in Cyprus counts as a day of residence in Cyprus
  • arrival and departure from Cyprus in the same day counts as one day of residence in Cyprus
  • departure and arrival in Cyprus in the same day counts as one day of residence outside Cyprus

Foreign taxes paid can be credited against the personal income tax liability.

Personal tax rates

The following income tax rates apply to individuals:

Chargeable income for the tax year Tax rate Accumulated tax
€ % €
First 19.500 Nil Nil
From 19.501 to 28.000 20 1.700
From 28.001 to 36.300 25 3.775
From 36.301 to 60.000 30 10.885
Over 60.000 35 ………

Foreign pension income is taxed at the flat rate of 5%. An annual exemption of €3.420 is granted. The taxpayer can however elect to be taxed at the normal tax rates and bands set out above. This is a choice which may be made year-on-year.

Exemptions

The following are exempt from income tax:

  • Interest, except for interest arising from the ordinary business activities or closely related to the ordinary business activities of an individual – The whole amount (1)
  • Dividends – The whole amount (1)
  • Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment, exemption applies for a period of 5 years for employments commencing as from 1 January 2012 provided that the annual remuneration exceeds €100.000 – 50% of the remuneration
  • Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of his employment, exemption applies for a period of 3 years commencing from 1st January following the year of commencement of the employment – 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 to a foreign permanent establishment of a Cyprus resident employer – The whole amount
  • Profits of a permanent establishment abroad 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 (2) – The whole amount

Notes:

1. Such dividend and interest income is subject to Special Contribution for Defence.

2. The term “Securities” is defined as shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated in Cyprus or abroad and options thereon.

A circular has been issued by the Tax Authorities in 2008 further clarifying what is included in the term Securities. According to the circular the term includes, among others, options on Securities, short positions on Securities, futures/forwards on Securities, swaps on Securities, depositary receipts on Securities (ADRs, GDRs), rights of claim on bonds and debentures (rights on interest of these instruments are not included), index participations only if they result on Securities, repurchase agreements or Repos on Securities, units in open-end or close-end collective investment schemes. The circular also clarifies specific types of participation in foreign entities which are considered as Securities.

Tax deductions

The following are deducted from 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
  • 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, provident fund, medical fund (maximum 1% of remuneration), pension fund contributions and life insurance premiums (maximum 7% of the insured amount) – Up to 1/6 of the chargeable income
  • Special contribution – The whole amount
Personal income tax 05/09/2014