Expatriate tax - Cyprus

EU nationals do not need a visa to enter Cyprus but will need to apply for a residence permit (yellow slip) if they plan to stay for more than 90 days.
Non-EU nationals planning to stay in Cyprus for over 90 days must apply for temporary residence to enter the Republic and for an employment permit within 1 month after arrival, provided they meet certain criteria i.e highly paid personnel. 

The tax year is the same as the calendar year; from 1 January to 31 December.

An individual resident of Cyprus is obliged to file their Income Tax Return T.D 1 via TAXISnet system.  
The Council of Ministers usually issues a decree each year exempting the obligation for submission of a tax return for individuals whose gross income does not exceed €19.500.

Employees and self-employed individuals whose annual gross income is less than €70.000 are obliged to file their Income tax returns T.D.1 and settle any final tax liabilities due on 31st of July of the following year. 

Self-employed individuals with annual gross income over €70.000 may be required to file audited financial statements and they are obliged to submit a return and make payments of any final tax liabilities on the 31st of March of the 2nd year following the tax year. 

Income Tax for employees is withheld from their employers via the Pay-As-You-Earn method. Employees who have an income on which tax is not withheld by their employer and self- employed individuals must pay tax via a provisional tax declaration during the current year in two equal installments on 31st of July and 31st of December. If the income declared in the provisional tax declaration is less than 75% of the final taxable income, then an additional tax of 10% on the difference is imposed.

Taxpayers are also obliged to pay Special Defense Contribution on sources of income that are exempt from Income Tax and make contributions to the General Health System not withheld at source (i.e Dividends from abroad) via the Self-Assessment method on the 30th of June and 31st of December.
 

Assume an employee who meets the criteria on Article 8.23A for a 50% deduction (mentioned under Basis of Taxation below) with an employment income of €60.000. The employee also receives dividend income of €25.000, Interest Income of €8.000 and rental income of €30.000.

Taxation in Cyprus depends upon one’s residence and domicile status.

Residents in Cyprus are taxable on their worldwide income. Non-domiciled individuals are exempt of Special Defense Contribution on dividend, interest, rental income. However, non-domiciled individuals have an obligation to pay contributions to the General Health System equal to 2.65% on gross income up to €180.000 and thus the maximum of contributions to GHS are caped to €4.770.

Individuals who meet the criteria laid down in either the 183-day rule or the 60-day rule qualify as tax residents of Cyprus and will have obligation to register with Cyprus Tax Department and be taxed on their worldwide income (any foreign tax paid on income derived from outside Cyprus which is subject to income tax in Cyprus may be credited against income tax payable on such income):

a)    183-day rule - persons who stayed in Cyprus for one or more periods which in total exceed 183 days in a calendar year;

b)    60-day rule - persons who meet ALL the following criteria:

• stay in Cyprus for at least 60 days;
• do not stay in another State for over 183 days;
• are not tax residents in another State;
• exercise any activity in Cyprus and/or are employed in Cyprus and/or hold office in a company established in Cyprus;
• have a permanent residence in Cyprus which they own or rent

Income from employment exercised in Cyprus for a Cypriot employer is taxable in Cyprus for resident or non-resident individuals.

The 90-day Rule; 

Employment income of resident individuals is exempt from taxation only if such employment is exercised outside Cyprus, remuneration is paid by an employer not resident in Cyprus or a permanent establishment of a Cyprus employer abroad for a period exceeding 90 days.

Share options as part of employment is usually taxed as an employment income. The taxable benefit occurs when the employee exercises the option and not when they receive it. 

If shares are directly distributed to the employees, their benefit is the cost of acquisition of the shares from their employer. If the shares are not immediately distributed but are held by the employer or entrusted for later transfer to the employees, the benefit for the employees will arise on the day they are granted the shares and will be equal to the market value of the shares on the day of transfer. 

(The tax treatment of stock options and other equity-based compensation could be a complicated matter and specific advice should be sought).

Where one exercises employment in Cyprus, any remuneration received in respect of these duties is treated as Cyprus sourced income and is therefore subject to Cyprus income tax regardless of the expatriate’s tax residence status (subject to the relevant double tax treaty).

Generally, an individual is liable to pay income tax and contributions to the General Health System on any benefits received (i.e bonuses or housing). 

50% deduction on employment income
Individuals whose first employment in Cyprus started from 1 January 2022 and who were residents outside the Republic for 15 consecutive years prior to the commencement of their employment in the Republic with annual emoluments exceeding €55.000 and under conditions are allowed of a 50% deduction on their employment income for a period of 17 years.

20% deduction on employment income
Individuals whose first employment in Cyprus either to a Cyprus or to a foreign resident employer, started from 26 July 2022 onwards are allowed an exemption of 20% from income tax (up to €8.550) per annum on their remuneration from employment for a period of 7 years, provided they were not residents of Cyprus for a period of at least 3 consecutive tax years, and were employed by a non-resident employer. The exemption is provided in the tax year following the tax year of commencement of employment and for a period of seven years. 

Foreign Pension
An individual receiving pension from abroad has the option to be taxed on the normal Income Tax Rates (mentioned above under 'Facts and Figures') or on the special rate of a flat 5% on pension above €3.420. 

Cyprus has signed Double Tax Agreements with 68 States. 

Tax Relief for foreign taxes are available through a Double Tax Treaty or unilateral relief, so that residents with income from abroad who have been subject to foreign tax are entitled to a credit equal to the lower between the foreign tax and the Cyprus tax levied on that income.

Allowable deductions and under conditions include payments to Medical Fund and Medical Insurance, contributions to the General Health System, Life Insurance premiums and contributions to Provident, Widows and Pension Funds and Social Insurance Fund. The total of such deductions should not exceed 1/5th of the net income before taking into consideration the above deductions.  

Other Deductions available and under conditions are contributions to trade union, donations to charitable organizations, professional subscriptions.

Capital Gains Tax (CGT) is imposed only when the asset relates to real estate in Cyprus or shares in companies holding real estate in Cyprus at the rate of 20% on the profit (sale price minus indexed cost of acquisition) resulting from the sale of real estate. Any improvements or expenses directly related to real estate i.e interest on loan, transfer fees, any legal and agent fees can also be taken into consideration when estimating the profit. 

Other than CGT, a levy on property disposals is applicable at 0.4% on all disposals of immovable property in Cyprus and on disposals of shares of a company that directly or indirectly holds immovable property in Cyprus.

Taxpayers may exclude one lifetime allowance of up to €85.430 in capital gain on the sale of a private residence.

Transfer fees is only paid if the real estate is available on the secondary market (No transfer fees are payable when the immovable property to be transferred is subject to VAT) and are equal to 1.5% for property worth up to €85.430, 2.5% for property worth between €85.430 and €170.860 and 4% for property worth more than €170.860.

There is no inheritance and gift tax in Cyprus (abolished since 2000).

Dividend, Interest and Rental Income is subject to Special Defense Contribution at various rates but only for residents and domiciled individuals. 

Dividend income received from companies in Cyprus or abroad for residents and domiciled individuals is exempt from Income Tax but subject to Special Defense Contribution at the rate of 17%. 

Interest Income is exempt from Income Tax but subject to Special Defense Contribution, normally at the rate of 30%. 

Rental Income (Gross) is subject to Income Tax reduced by 20% and added to the rest of the taxable income to be taxed at the normal income tax bands. Rental Income is also subject to Special Defense Contribution reduced by 25% at the rate of 3%. 

There are certain local municipal taxes related to real estate for communal services such as refuse collection, water board, sewage fees, etc.

Immovable Property tax at national level in Cyprus was abolished since 2017. However, municipalities apply an annual tax on the value and location of the immovable property based on the market value.

Social Insurance contributions for employees are equal to 8.3% of their gross employment income, capped at €60.060 per year or €5.005 per month. As at 01 January 202capped, Social Insurance contributions will be increased by 0.6% from 8.3% to 8.9%

Employment Income is subject to contributions to the General Health System at 2.65%. Self Employed individuals are contributing 15.6% to the Social Insurance Fund and 4% of their gross employment remuneration for contributions to the General Health System. 

There is no wealth tax in Cyprus.

General Health System; tax residents are obliged to contribute to the national health system based on their annual gross income, either this derives from employment, director services, pension, dividend, interest, rental and other income i.e benefits in kind at 2.65%. Remuneration from self-employment income is taxed at 4%. 

Stamp duty tax is applied on written contracts concerning an asset located in Cyprus and depends on the value of the contract as follows:

•    0,15% for value between €5.000 and €171.000.
•    0,2% for property worth more than €171.000. 

with a maximum amount of €20.000 per agreement. 

Such reporting is not applicable in Cyprus.