Taxes in Cyprus: A Comprehensive Overview
Cyprus has earned a reputation as a business-friendly and tax-efficient jurisdiction within the European Union. Its strategic location, favorable tax regime, and extensive network of double taxation treaties make it a preferred destination for individuals and corporations alike. This article outlines the key aspects of the Cypriot tax system.
1. Corporate Taxation
Cyprus offers one of the lowest corporate tax rates in the EU:
Corporate Income Tax: 12.5% on net profits.
Tax Residency: A company is considered a tax resident if it is managed and controlled in Cyprus. As of 2022, an additional criterion (incorporation test) was introduced for companies with no foreign tax residency.
Exemptions:
Profits from the sale of securities (shares, bonds, etc.).
Dividend income (under certain conditions).
Foreign Permanent Establishment (PE) profits (if taxed abroad).
2. Personal Income Tax
Cyprus has a progressive personal income tax system:
| Annual Income (€) | Tax Rate |
|---|---|
| 0 – 19,500 | 0% |
| 19,501 – 28,000 | 20% |
| 28,001 – 36,300 | 25% |
| 36,301 – 60,000 | 30% |
| Over 60,000 | 35% |
Tax Residency:
Individuals are considered tax residents if they spend more than 183 days in Cyprus annually.
Alternatively, under the 60-day rule, individuals who don’t reside in any other country for over 183 days can become Cypriot tax residents if they have ties to Cyprus (business or employment and a residence).
3. Value Added Tax (VAT)
Standard Rate: 19%
Reduced Rates: 9% (e.g., for hotels), 5% (e.g., food, books)
Zero Rate: For exports and intra-EU supplies.
Businesses with taxable turnover over €15,600 must register for VAT.
4. Special Defense Contribution (SDC)
Applies to Cyprus tax residents (individuals and certain companies) on:
Dividends: 17%
Interest Income: 17%
GESY – 2.65% on Max income of €180,000
Rental Income: 3% (on 75% of the gross amount)
Non-residents are exempt from SDC.
5. Capital Gains Tax (CGT)
Imposed at 20% on gains from the disposal of immovable property in Cyprus and shares of companies holding such property.
Foreign property sales are not subject to CGT.
6. Inheritance and Wealth Tax
No inheritance tax, wealth tax, or gift tax in Cyprus – a major advantage for estate planning.
7. International Agreements and Compliance
Cyprus has over 65 double tax treaties to prevent double taxation and promote cross-border investment. It is also compliant with OECD standards and participates in EU anti-tax avoidance initiatives.
Conclusion
Cyprus’s transparent, business-friendly tax system offers competitive advantages for both individuals and corporations. With low tax rates, broad exemptions, and compliance with international norms, it remains an attractive hub for international business and relocation.
