Income tax, Capital gains tax, VAT and Social Insurance Contributions, basic facts guide for Cyprus.
Resident companies, defined as those whose management and control is exercised in Cyprus, are subject to tax on their worldwide income. Non-resident companies are subject to tax on their Cyprus source income. The standard corporate income tax rate is 12.5%.
Capital gains are not generally subject to tax in Cyprus. However, tax is generally imposed at the rate of 20% in respect of gains arising from the disposal of immovable property situated in Cyprus, including gains from the sale of shares in a company which owns immovable property situated in Cyprus and is not listed on any recognised stock exchange.
Losses that would be taxable if they were a profit may generally be carried forward for up to five years (restrictions may apply in certain circumstances, such as if there has been a change in the ownership of the company and a substantial change in the nature of the business). Losses cannot be carried back.
Group tax consolidation is not available in Cyprus; each company in the group must submit their own corporate tax return. However, the losses of one company in the group (as defined) may be offset against the profits of another, provided both companies are resident in Cyprus.
The tax year ends on 31 December. Companies may use a different accounting year, in which case the taxable profit must be apportioned between the two tax years. Corporate tax returns are generally due for filing by 31 March of the second year following the tax year and must be submitted electronically (i.e. for year ending 31 December 2020 the tax return is due for filing by 31 March 2022). Temporary tax payments of tax are payable during the tax year in two instalments, by 31 July and 31 December. Any outstanding tax balance must be paid by 1 August of the following year.
Personal Taxes
Resident individuals are subject to tax on their worldwide income. Non-resident individuals are subject to tax on their Cyprus source income.
Resident and non-resident individuals are taxed at the following rates (subject to deductions and allowances):
| Taxable Income (Euro) | Tax Rate | Cumulative tax (euro) |
|---|---|---|
| 0–19,500 | 0% | zero |
| 19,501–28,000 | 20% | 1,700 |
| 28,001–36,300 | 25% | 3,775 |
| 36,301–60,000 | 30% | 10,885 |
| 60,001 and above | 35% | - |
General personal tax rules, Tax exemptions and incentives for new Cyprus tax residents
Previously non-resident individuals taking up residence as employees in Cyprus are entitled to a 20% income tax exemption on their employment income (subject to a maximum of EUR8,550) for the first five full tax years following the year of commencement of employment.
Previously non-resident individuals taking up residence as employees in Cyprus with an annual gross income exceeding EUR100,000 are entitled to a 50% income tax exemption on their employment income for ten years from the commencement of employment.
Individuals receiving income in respect of a foreign pension may elect to be taxed at the above personal income tax rates, or at a special rate of 5%, on the portion of income exceeding EUR3,420.
Additional Income of employees, self-employed individuals and pensioners whose income has not been subject to Social Insurance contributions, is subject to contributions to the National Health Scheme (N.H.S- ΓεΣΥ) of Cyprus, at the rate of 2.65%. At the same time, the individuals have the right to register with the National Health Scheme and receive medical care and medicine, at a very low cost or free in some cases.
In addition, resident individuals are generally subject to a special contribution for defence in respect of dividends, interest and rents received at varying rates. Non tax resident and non-domiciled individuals are exempt from these contributions.
Capital gains tax is generally imposed at the rate of 20% in respect of gains arising from the disposal of immovable property situated in Cyprus, including gains from the sale of shares in a company which owns immovable property situated in Cyprus and is not listed on any recognised stock exchange, subject to certain deductions and exemptions.
There are no inheritance, estate or gift taxes in Cyprus; however, stamp duty may apply (see “Other Taxes”).
There is no wealth tax in Cyprus.
Employment Related Costs and Taxes
Fringe benefits tax
There is no separate fringe benefits tax in Cyprus. The value of any taxable benefits-in-kind are generally treated as part of the employee’s salary and taxed accordingly.
Social insurance contributions
Employees must make monthly contributions to the Social Insurance Fund at the rate of 8.3% and National Health Scheme Contributions at the rate of 2.65%, up to certain salary ceilings. These are deductions withheld at source by the employer.
Employers must also make the equivalent contribution of 8.3% to the Social Insurance Fund for their employees, contribution of 2.90% to the National Health Scheme Fund, 2% to the redundancy fund and 0.5% to the training development fund. For these contributions there are certain maximum ceilings. In addition, cohesion fund at the rate of 2% is to be contributed, for which there is no salary ceiling.
Withholding Taxes on Payments Abroad
There is no withholding tax on dividends, interests and royalties paid to non-residents of Cyprus. However, royalties pertaining to rights that are used in Cyprus are subject to withholding tax at rates of 5% for film rights, and 10% for all other rights, subject to reduction or exemption under a double tax agreement or under the EU Interest and Royalties Directive.
Value Added Tax (VAT)
VAT is levied on the supply of goods and services in Cyprus, the intra-EU acquisition of goods, and on the importation of goods.
Trading entities which are required to be registered for VAT must generally charge their customers VAT of 19% on the value of their supplies. Reduced VAT rates of 0%, 5% and 9% apply to certain categories of goods and services. Certain supplies are VAT exempt, including medical care, educational services and most financial services.
Under the applicable EU VAT Directives, for the sale of services and products to other EU VAT registered entities, the reverse charge rule applies, under which essentially no VAT is charged.
A business is required to register for VAT purposes at the end of any month if the value of its taxable supplies during the previous 12 months exceeds EUR15,600, or at any time if it is believed that taxable supplies will exceed EUR15,600 in the following 30-day period. Businesses may also be required to register for VAT purposes in other circumstances. Businesses may register for VAT voluntarily if compulsory registration does not apply.
Registered businesses can generally recover the VAT with which they themselves are charged. This does not generally apply to VAT exempt supplies.