Cyprus Taxes

Tax System

If you spend 183 days per annum in Cyprus, you'll become its tax resident. This rule is typical for many territories. However, there is a second way of becoming a tax resident on this island, which makes it stand out from the rest. To use it, you should tick all these boxes:

• Spend at least 60 days per annum on the island
• Establish your permanent residence there
• Run a business on the island or work for a company that is its tax resident
• Avoid spending longer than 183 days in a third-party state
• Avoid being a tax resident of a third-party state

When calculating the duration of your stay, mind that the departure day from Cyprus qualifies as a day outside the island – and the arrival day qualifies as the day that you spend on the island. If you arrive and depart on the same day, it's the day that you spend on the island. And if you depart and come back on the same day, it's the day that you spend outside the state. To back up the facts, please keep your plane tickets and boarding passes and make a certified copy of your passport with entry stamps.

Specifics of the Domicilied Status

After you spend 17 years out of the previous two decades in the status of a tax resident, you'll be domiciled on the island. In this case, you'll have to pay more taxes. To cut down your expenses, you may request a non-domiciled status. It's available to individuals who remain tax residents on the island but don't live there permanently and are not planning to relocate there for good. You'll be required to prove your intentions with documents.

As a non-domiciled person, you'll be exempt from the taxes on:

• Interest income, regardless of its origin
• Dividends, regardless of their origin
• Capital gains from the sale of corporate rights and securities

People who have never been domiciled in Cyprus previously also become exempt from the taxes on the income generated outside of this state.

To obtain these privileges, you should get a certificate of a non-domiciled person. In particular, it can be issued to foreigners who become the island's residents thanks to investments.

Non-domiciled individuals pay taxes on a regular basis for their:

• Business or professional activities on the island
• Income on real estate rentals, regardless of their location
• Profit they make on selling properties on the island or shares of organizations that own real estate there

The income tax won't be charged on the initial €19,500.

Income Tax

The amount of this tax is calculated based on your income level. Those who fail to make €19,500 per annum don't pay anything. For those who exceed this limit, the lowest rate is 20%. The maximum rate of 35% is applied to those who earn over €60,000. The rate is charged only for the amount that exceeds €19,500 per annum.

Local tax residents take into account all their income when calculating their taxes. It doesn't matter whether they generate this income on the island or abroad. For non-residents, the tax is charged only for the income that they make locally.

Those who receive a pension from abroad don't need to pay a tax for it if its monthly amount fails to exceed €3,420. If it does, the tax rate will be 5%, which is very affordable.

Social Contributions

Individuals need to contribute to social insurance and the national health system. The former tax rate is 8.3% of one's income up to €54,864. The latter tax rate is 2.65% for up to €180,000. For entrepreneurs, these numbers are higher – 15.6% and 4%, respectively.

If a person receives passive income, they pay social insurance contribution for it. Its rate varies from 2.65% to 4%, depending on the person's sources of income, and its maximum annual amount is €180,000.

Corporate Tax

If an organization is a local tax resident, it pays a 12.5% tax on the island on the income that it generates from all possible sources, regardless of their location. This tax is not relevant for:

• Non-residents
• Shipping companies – most of them are exempt from it
• Insurance businesses – for them, the rate is calculated individually depending on the specifics of their activities

The standard VAT rate is 19%. For the hospitality sector, it's 9%. For property repairs and renovation, it's 5%.

Property Tax

When buying, owning, or selling property, you're supposed to pay taxes. Let's have a closer look at them.

For Buyers

Stamp duty needs to be paid within a month of signing the purchase contract. The first €5,000 of the property's value is exempt from it. For the first €170,860, the rate is 0.15%. For the sum that exceeds this threshold, the rate amounts to 0.2%.

The transfer fee is relevant only for second-hand properties and is based on their market value at the moment of sale. The rate is 3% for the initial €85,000, 5% up to the threshold of €170,000, and 8% for the remaining amount. To cut down your expenses, you can appoint two or more owners for the purchase. The market value will be split among them and each owner will be subject to a lower tax rate.

The standard VAT rate for a property deal is 19%. It is relevant only for new houses and apartments that lacked previous owners. It's not relevant for plots of land regardless of their ownership history.

19% seems to be an impressive number – but the good news is that there are ways to reduce your spending. For instance:

• If you're planning to relocate to the island for good and use the purchase as your main place to live, the VAT can decrease to 5%
• The VAT rate can also depend on the number of owners
• If you pay VAT, you might not need to pay the transfer fee and you may benefit from a 50% discount for stamp duty
• There might be benefits for first-time buyers – such as a 5% VAT for a new property in which you are planning to live and that occupies less than 200 sq.m

Each case is individual and is determined by the property characteristics as well as your personal circumstances.

For Sellers

When selling a house or apartment, be ready to pay a capital gains tax. Its standard rate is 20% for all property types. The rate is applied to the property's market value – but the first €17,086 are exempt from it. If you have lived in your house or apartment for at least 5 years, the initial €85,430 will be exempt from the tax.

It's the vendor's responsibility to collect the documents and permissions that are necessary for the deal. The individual price of each paper normally varies from €5 to €50. In total, you might need to spend a couple of hundred EUR.

For Owners

While there is no state-wide tax for owning properties, municipalities have the right to charge it. The sum that you'll have to pay every year will depend on the size and location of your house or apartment. Normally, it should be around €200.

The maintenance fees are also determined by the size, type, and location of your property. They are paid to the municipality. The annual sewer tax rate varies from 0.5% to 3% of the property's value. The expenses for street lighting, garbage collection, and other services can vary from around €100 to €300 per annum. If you are planning to drive a car, the tax for the fact of using the roads will be calculated based on the vehicle's engine capacity. Its potential annual range is from €10 to slightly over €500.

Real estate insurance on the island is among the most affordable in the EU. Its monthly amount can be as low as €50.

If you are planning to rent out your house or apartment, be ready to pay an income tax on it. Its rate can vary from 20% to 35%.

Depending on your personal circumstances, you might need to pay the defense tax, VAT on rentals, and maybe some other fees. Please contract a skilled expert to consult you on the matter.

Defense Tax

All the island residents contribute to its defense system by paying a tax that can include:

• 30% of the interest received by an individual whose level of annual income exceeds €11,960
• 20% of the dividends received by the island's citizens on its territory
• 3% from the rental income that residents make or from the profit of an individual whose level of annual income fails to exceed €11,960

This tax isn't applied to non-domiciled people.

Taxation Calendar

At the end of each month, employers are supposed to pay for general healthcare and social insurance for their staff. Self-employed individuals should pay the social insurance tax by the 10th of the second month following the end of the quarter.

The right time to pay VAT is by the 10th of the second month after the termination of the VAT period.

Here are some other dates that taxpayers in Cyprus should remember:

By the end of July, it's time to submit your personal tax return for the previous year. By the beginning of August, it's time to pay the tax balance for the previous year if you or your business submit audited financial statements.

Your individual taxpayer calendar will depend on the specifics of your activities on the island. If you fail to pay your taxes on time, penalties will be charged.

Tax Exemptions

In this island state, it's not necessary to pay the taxes for:

• Being wealthy
• Owning property
• Inheritance
• Receiving gifts
• Earning dividends or interest income
• Selling securities
• One-time insurance payments for injury or death
• One-time retirement compensations

If a foreigner gets employed on the island for the first time before becoming a tax resident, they have the right for exemptions:

• Those who make over €100,000 per annum pay the tax for only one-half of their income. This privilege remains valid for 5 years.
• Those who earn less than €100,000 per annum pay the tax for 80% of their income. The annual amount of the exemption can't exceed €8,550. This privilege remains valid for 10 years.

If the income amount of a foreigner changes over time, they won't be allowed to combine both privileges. Each individual can use only one of them.

When calculating income tax, don't forget to deduct the following types of expenses from it:

• Contributions to reserve funds
• Expenses for participation in a trade union or a professional organization
• Donations to legally defined charitable foundations
• Cost of renting out premises that constitute up to 20% of rental income

There are several other exemptions that are relevant only for smaller groups of taxpayers, that's why we won't focus on them in our article.

Dual Taxation

This island state has dual taxation treaties with over 50 countries from various regions of the world. These include the USA, Canada, the UK, Germany, Spain, India, China, and others. If your homeland belongs to the list, you'll need to pay your taxes either there or in Cyprus but not in both territories. However, if your homeland insists on you being its tax resident, you'll have to pay taxes there.