Personal income tax in Cyprus

Personal income tax in Cyprus

Cyprus Personal Income Tax is imposed on the global income (accruing or arising from sources both within and outside Cyprus) of Cyprus tax resident individuals. Non-Cyprus tax residents are taxed only on specific types of income accruing or arising only from sources within Cyprus (e.g. rental income from real estate property located in Cyprus).

Below you can find a summary of the PIT rates, exempt income, deductible and non-deductible expenses currently applicable to individuals.

Personal Income tax rates

Taxable Income Tax rate Tax Cumulative Tax
%
0-19.500 0 0 0
19.501-28.000 20 1.700 1.700
28.001-36.300 25 2.075 3.775
36.301-60.000 30 7.110 10.885
Over 60.000 35*

 

*35% tax rate being among the lowest in EU

Tax basis

All Cyprus tax resident individuals are taxed on all chargeable income accrued or derived from all sources in Cyprus and abroad.

Individuals who are not tax residents of Cyprus are taxed on certain income accrued or derived from sources in Cyprus.

A tax resident in Cyprus is any individual who spends more than 183 days in any one calendar year in Cyprus.

As of 1 January 2017, an individual may also be considered a tax resident in Cyprus if (s)he satisfies the “60-day rule”. The “60-day rule” applies to individuals for whom all of the below are true in the relevant tax year:

  1. So not reside in any other single state for a period exceeding 183 days in aggregate;
  2. Are not considered tax residents by any other state;
  3. Reside in Cyprus for at least 60 days;
  4. Have other defined Cyprus ties. To satisfy this condition the individual must carry out any business in Cyprus and/or be employed in Cyprus and/or hold an office (director) of a company tax resident in Cyprus at any time in the tax year, provided that such is not terminated during the tax year. In addition, the individual must maintain in the tax year a permanent residential property in Cyprus which it is either owned or rented.

How are the days in and out of Cyprus calculated based on the “183 days rule” and the “60 days rule”?

  • The departure day from Cyprus counts as a day of residence outside Cyprus.
  • The arrival day in Cyprus counts as a day of residence in Cyprus.
  • Arrival and departure from Cyprus in the same day counts as one day of residence in Cyprus.
  • Departure and arrival in Cyprus in the same day counts as one day of

residence outside Cyprus

Exempt Income

Source of Income Exemptions Alert
     
Dividend income The whole amount dividend income may be subject to Special Contribution for Defence

 

Interest Income

(non-business related)

The whole amount Interest income may be subject to Special Contribution for Defence
Foreign exchange gains The whole amount Persons trading in FX have an option to make an irrevocable election to be subject to tax only on realised

FX differences

Profits from disposal of

Securities (note 1)

The whole amount  
Profits from the production of films, series and other related audiovisual programs The lower of 35% of the eligible expenditure and

50% of the taxable income

Any restriction may be carried forward for 5 years.
Profits of a foreign permanent establishment The whole amount With effect as from 1 July 2016, taxpayers may elect to tax the

With effect as from 1 July 2016, taxpayers may elect to tax the profits earned by a foreign permanent establishment, with a tax credit for

foreign taxes incurred on those foreign permanent establishment

profits. Transitional rules apply in certain cases on the granting of

foreign tax credits where a foreign permanent establishment was

previously exempt and

subsequently a taxpayer elects to be subject to tax on the profits of the foreign permanent establishment

tax on the profits of the foreign permanent establishment.

Profit from Restructuring a qualifying loan

 

The whole amount  
Capital gain from the disposal of

intellectual property rights under the IP regime

The whole amount  
Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment,

exemption applies for a period of 10 years for employments commencing as from 1 January 2012 provided that the annual remuneration exceeds €100.000.

For employments commencing as from 1 January 2015 the exemption does not

apply in case the said individual was a Cyprus tax resident for 3 (or more) tax years out of the 5 tax years immediately

prior to the tax year of commencement of the employment nor in the preceding tax year. I

n certain cases it is possible

to claim the exemption where income falls below €100.000 per annum. The Minister of Finance has announced the intention of the government to introduce

amendments to the 50% exemption commencing as from year 2022, including lowering the minimum salary to €55.000

and increasing the years of the exemption to 17

 
Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the

commencement of the employment. The exemption is available for a period of years for employments commencing during or after 2012 and it applies

from the tax year following the year of commencement of the employment, with the last eligible tax year being 2030. This

exemption may not be claimed in addition to the immediately above mentioned 50%

exemption for employment income

20% of the remuneration

with a maximum amount of

€8.550 annually

 
Remuneration from salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus

resident employer or to a foreign

permanent establishment of a Cyprus resident employer

 

The whole amount  
Lump sum received by way of retiring gratuity,

commutation of pension or compensation for death or injuries

The whole amount  
Lump sum repayment from life insurance schemes or approved

provident funds

The whole amount  
Rent from a preserved building The whole

amount

 
Capital gain from the disposal of intellectual property rights under the IP regime The whole

amount

 

 

Pension income from services rendered abroad

Pension income of any individual resident in the Republic, which arises from services rendered abroad, is taxed at a flat rate of 5% for amounts exceeding €3.420 per annum. The taxpayer has the right to choose to be taxed either under the special mode of taxation as stated above or under the personal income tax rates If the latter is chosen, the

pension is added to the individual’s taxable income.

Widow’s pension

Total amount of widow’s pension received from the Social Insurance Fund and/or other approved pension funds is taxed at a flat rate of 20% on amounts exceeding €19.500.  The taxpayer can however elect to be taxed in accordance with the personal income tax rates (page 3). In this case, the pension is added to the individual’s taxable income 

Deductible expenses

Expenses deducted from income Deductions Alert
     
Contributions to trade unions or professional bodies The whole

amount

 
Social Insurance, General Health System medical fund, private medical

fund insurance contributions (maximum

1,5% of remuneration),

pension and

provident fund contributions (maximum

10% of remuneration) and

life insurance premiums (maximum 7% of

the insured amount)

Up to 1/5 of the chargeable

income

Loss of current year and previous years The whole

amount

For individuals required to

prepare audited financial statements,

current year losses and losses of the previous five years only may be

deducted

Expenses for letting of buildings 20% of gross rental income  
Donations to approved charities (with receipts)

 

The whole

amount

Without receipts donations up to €300
Donations to political parties

 

Up to €50.000 Subject to conditions
Expenditure for the maintenance of buildings under preservation order Up to €1.200, €1.100 or

€700 per square meter

depending on the size of

the building

Amount invested each tax year as from

1 January 2017 in approved innovative

small and medium sized enterprises

either directly or indirectly

(applicable up to 30 June 2021)

Up to 50% of the taxable

income as calculated prior

to this deduction (subject

to a maximum of €150.000

per year)

Unused deduction can be carried forward and claimed in the

following 5 years, subject to the cap of 50% of taxable income

(and overall maximum of €150.000 per year)

Eligible infrastructure and technological

equipment expenditure in the

audiovisual industry

20%

Wear and tear allowances

Individuals carrying on a business are allowed to deduct wear and tear allowances on assets used in the business from their taxable income.

Non-deductible expenses

The following expenses are not deductible in calculating the taxable income of a self-employed individual:

Expense Non-deductible
Expenses not incurred wholly and exclusively for the production of taxable income The whole amount
Expenditure not supported by appropriate documentation The whole amount
Business entertainment expenses Amount in excess of 1% of the

gross income or €17.086

(whichever is lower)

Private motor vehicle expenses

 

The whole amount
Interest payable or deemed to be payable in relation to the acquisition of a private motor vehicle, irrespective of whether it is used in the business or

not, or other asset not used in the business. This restriction ceases after 7 years from the date of acquisition of the relevant asset.

The whole amount
Wages and salaries relating to services offered within the tax year on which social insurance and other contributions have not been paid in

the year in which they were due.

The whole amount

Notes:

The term “Securities” is defined as shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated in Cyprus or abroad and options thereon. Securities, among others, cover options on Securities, short positions on Securities, futures/forwards on Securities, swaps on Securities, depositary receipts on Securities (ADRs, GDRs), rights of claim on bonds and debentures (rights on interest of these instruments are not included), index participations only if they result on Securities, repurchase agreements or Repos on Securities, units in open-end or close-end collective investment schemes. Specific types of participation in foreign entities which are considered as Securities.

For more information on the Cyprus Income Tax, please contact us at info@savvacyprus.com. We would be happy to assist you.

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