For persons residing in Cyprus or planning to do so in the future, it’s necessary to have information on taxes and fees they have to pay whilst living on the island. We have prepared an overview of taxes and fees, which are paid by Cyprus tax residents.
Tax residents
Persons who are tax residents of Cyprus pay taxes on income received from sources both abroad and on the income received in Cyprus. Individuals become tax residents if they stay on the island for more than 183 days a year. The rate of income tax in Cyprus is:
- €0 to €19,500 per year — 0%
- €19,500 – €28,000 per year — 20%;
- €28,000 – €36,300 per year — 25%;
- €36,300 – €60,000 per year — 30%;
- more than €60,000 per year — 35%.
In addition, persons who receive income of over €1,500 per month have to pay special charges, the size of which in 2014-2016 was:
- €0 – €1,500 per month — 0%;
- €1,501 – €2,500 per month — 1.25%;
- €2,501 – €3,500 per month — 1.5%;
- more than €3,500 per month — 1.75%.
From the income tax the following types of income are exempt:
- 50% of the consideration received from the implementation of employment, a person is a tax resident of another state prior to the start of the employment. These exemptions are granted for 5 years provided that the employee’s income exceeds €100,000 per year;
- 20% (maximum deduction of €8,550) from the salary or other type of compensation, for foreign employees who work in Cyprus and are tax residents for a period of 3 years, starting from January 1st of the year following the year of commencement of employment in Cyprus;
- the entire amount of income from interest and dividends;
- profits from the sale of securities;
- remuneration received from work abroad for non-residents of Cyprus, or in the branches of Cypriot companies for the residents, if the person resides abroad for more than 90 days per year;
- lump sum upon retirement, pensions, death grants, insurance payments related to personal injury or death.
From taxable income as deductible:
- fees to reserve funds;
- the costs of participation in trade union or professional organizations;
- donations to specific charities law;
- the cost of renting premises (a maximum of 20% of rental income).
Special defence fee and capital gains tax
All tax residents of Cyprus must pay a special defence fee. Persons who are not tax residents, should not pay this fee. Capital gains tax is the tax on gains from the sale of immovable property situated in Cyprus. The list of taxable items also includes the value of shares of companies that are not quoted on a recognized stock exchange, which own immovable property in Cyprus. Tax rate is 20% with indexation. All other types of income are not taxed on capital gains.
Foreign pensions’ taxation
A person who is a tax resident of Cyprus can choose one of the following taxation schemes:
- the first €3,420 is not taxed, the rest of the pension income is taxed at a rate of 5%;
- all pension income is included in other income and taxed at the standard rate – the scheme is for those whose income is low and does not exceed €19,500 per year.
Tax payment in Cyprus
Taxes on employees of companies operating in Cyprus shall be paid by the employers from the employee’s monthly salary. Self-employed persons must declare the income if he exceeds the amount of €19,500 per year, and to submit a declaration before the 1st of July of the year of the reporting period. After the adoption, the tax declaration is to be paid in two equal instalments during the tax year.
