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Cyprus

General Information

Country Name: Cyprus
Currency: Euro (€) (EUR)
Primary Tax Authority: Tax Department of the Ministry of Finance
Key Legislation:

  • The Income Tax Law of 2002 (Law No. 118(I)/2002)
  • The Special Defence Contribution Law of 2002 (Law No. 117(I)/2002)
  • The Value Added Tax Law of 2000 (Law No. 95(I)/2000)

Fiscal Authority Allocation

Centralized Fiscal System:
Taxation in Cyprus is highly centralized. There are no regional or local taxes, and the national government oversees the collection and management of all tax revenue.

Corporate Income Tax (CIT)

Standard Rate: 12.5%
Cyprus offers one of the lowest corporate tax rates in the European Union at 12.5%. Companies resident in Cyprus are taxed on their worldwide income, while non-resident companies are taxed only on Cyprus-sourced income.

Exemptions and Incentives:

  • Dividend Income: Exempt from CIT if holding conditions are met.
  • Capital Gains: Gains from the sale of securities are exempt from CIT.
  • IP Box Regime: Income from intellectual property assets may qualify for a preferential effective tax rate.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

Standard Rate: 19%
Cyprus applies a VAT rate of 19%, with reduced rates of 9% and 5% for specific goods and services (e.g., accommodation services, pharmaceuticals, and books). Essential goods, such as certain foodstuffs and medical supplies, are often subject to lower rates.

Exemptions:
Financial services, insurance, and education services are exempt from VAT.

Personal Income Tax (PIT)

Progressive Rates:
Cyprus implements a progressive personal income tax system.

  • Income up to €19,500: 0%
  • Income between €19,501 and €28,000: 20%
  • Income between €28,001 and €36,300: 25%
  • Income between €36,301 and €60,000: 30%
  • Income above €60,001: 35%

Non-Domiciled Tax Regime:
Foreigners classified as non-domiciled residents are exempt from the Special Defence Contribution (SDC), which taxes dividend, interest, and rental income.

Additional Mandatory Contributions

Social Insurance Contributions:
Both employers and employees are required to make social insurance contributions.

  • Employer Contribution: 8.3% of gross salary
  • Employee Contribution: 8.3% of gross salary

Self-Employed Contribution: Self-employed individuals contribute 15.6% of their income, subject to certain income bands.

Withholding Taxes

  • Dividends: 0% (for non-residents and resident companies)
  • Interest: 0% (for non-residents)
  • Royalties: 0% on royalties paid to non-residents for rights used outside Cyprus

Cyprus has an extensive network of double tax treaties, and these may reduce or eliminate withholding taxes further.

Transfer Pricing Rules

Cyprus has recently introduced transfer pricing rules in line with OECD guidelines, requiring related-party transactions to be conducted on an arm’s-length basis. Documentation requirements apply for transactions exceeding specific thresholds.

Special Tax Regimes

  • Non-Domiciled Status: Cyprus offers tax benefits to non-domiciled individuals, including exemptions on dividends and interest income from the Special Defence Contribution.
  • IP Box Regime: Income derived from qualifying intellectual property is taxed at an effective rate of 2.5%.

Other Taxes

  • Special Defence Contribution (SDC): Residents are subject to a 17% tax on dividends, a 30% tax on interest, and a 3% tax on rental income, unless exemptions apply.
  • Capital Gains Tax: 20% on gains from the sale of real estate located in Cyprus and on the sale of shares in companies holding such real estate.
  • Immovable Property Tax: Abolished as of 2017, no longer applicable.

Double Taxation Agreements (DTAs)

Cyprus has established an extensive network of over 65 double taxation agreements, particularly with countries in Europe and Asia. These treaties generally offer reduced tax rates on dividends, interest, and royalties, and protect against double taxation. Especially noteworthy is the DTA with Austria, which makes it possible for Austrian residents to run companies in Cyprus without paying PIT.

Local Taxes

Cyprus does not impose local or municipal taxes. All tax is collected by the national tax authority.

Compliance and Reporting

Annual Filing:
Individuals and corporations must file annual tax returns. The tax year runs from January 1st to December 31st. For individuals, the deadline is typically July 31st of the following year. For companies, returns must be filed by the end of the 12th month after the accounting year-end.

Penalties for Late Filing:
Late filing of tax returns and late payments of taxes are subject to interest at a rate of 2% per annum and additional penalties depending on the type and duration of the delay.

Recent Developments

Corporate Tax Reform:
Cyprus is considering adjustments to its corporate tax system to align with international standards, particularly concerning OECD BEPS measures. This includes stricter transfer pricing rules and substance requirements for companies operating within Cyprus.

Digital Services Tax (DST):
In line with EU efforts, Cyprus is evaluating the introduction of a digital services tax to address the challenges of taxing the digital economy. However, no formal decision has been made yet.

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