The tax system in Cyprus offers incredible opportunities for those seeking tax optimization for their personal and corporate income. It is especially attractive because it comes with full compliance with international and EU standards and around sixty double taxation treaties.
The system comes with plenty of benefits for foreigners, with 50 % tax credits on personal income for those with incomes above €100k per year, and tax exemptions on passive income such as interest and dividends and tax exemptions on disposals of securities.
The first that we must discuss regarding the Cypriot tax system is its “non-dom” regime, introduced in 2015. In this program, tax residents’ that qualify as non-Cyprus domiciled are exempt from the SCD (Special Contribution for Defense) on their passive income (interests, dividends, and such) and unconditional tax exemptions on gains on disposals of securities for 17 years.
There are two paths towards the non-dom status in Cyprus: the 183-days rule and the 60-days rule.
The 183-days-rule
- Permission to reside (various options available depending on the origin of the individual).
- Rent or own immovable property in the Republic of Cyprus as the primary residence.
- Own a bank account in Cyprus and use as the central banking facility for his personal needs.
- Own local telephone and/or internet facility contract with a local provider.
- Can prove, if required, that is self-sufficient in terms of financing his cost of living.
- Is ready to show and prove presence on the island for more than 183 days if needed.
- Inform the tax authorities of the previous tax residency of the decision to move the tax residency to Cyprus.
60-day-rule
- He or she does not reside in any other country for 183 days.
- He or she resides in Cyprus for at least 60 days.
- He or she carries out business in Cyprus, is employed in Cyprus or holds an office in Cyprus with a Cyprus tax resident company, as long as he is not terminated during the tax year.
- He or she maintains a permanent home in Cyprus during the tax year (it can be owned or rented).
Now we can further explain the main features of Cyprus’ tax system. The main direct taxes applicable to individuals in Cyprus are income tax, the SCD on dividend, interest, and rental income, and capital gains tax on Cypriot real estate sale. An individual that works in Cyprus is also subject to social insurance and similar contributions.
Regarding the income tax, taxable income up to €19.5k is exempt. From that point, taxable income is progressively taxes on rates that range from 20 to 35 %:
Tax Base
(€) |
Tax rate
(%) |
Up to
19.500 |
0 |
19.501
to 28.000 |
20 |
28.001
to 36.300 |
25 |
36.301 to
60.000 |
30 |
Over
60.000 |
35 |
There are also significant social security contributions that must be considered:
Employer contributions:
- Social insurance: 8.3 %
- Redundancy fund: 1.2 %
- Social cohesion fund: 2 %
- Human resources development fund: 0.5 %
- Central holiday fund: 8 %
Employee contributions:
- Social insurance: 8.3 %
- Self-employed contribution (if applicable): 15.6 %
The National Health Insurance System is a universal healthcare system that is financed through a set of contributions. The most significant for individuals and private companies are:
- 2.65 % for employees
- 2.9 % for employers
- 4 % for self-employed individuals
- 2.65 % for individuals earning rental, interest, and/or dividend income
The earnings are deducted from the entire earnings of the individual up to €180k per year.
The Special Defense Contribution (SDC), also known as the Defense tax, applies on determinate types of income such as:
- Dividend income (17 %)
- Passive interest income (30 %)
- Rental income (2.25 %)
This may seem in the low-end of the OECD taxes, but nothing too beneficial. Here is when it gets better. An expat that relocates to Cyprus is eligible to one of these tax exemptions on employment income:
- 50 % of the remuneration from employment in Cyprus for ten years if the income exceeds €100k per year. The individual cannot be a Cypriot tax resident for at least three of the last five years or the tax year immediately prior before his or her employment.
- 20 % of the remuneration or €8,550 (the lower of the two) from employment in Cyprus by an individual that resided outside Cyprus before starting to work in Cyprus for five years.
Likewise, any income from overseas employment to a non-resident employer or to an overseas establishment of a resident employer for at least 90 days is fully exempt from income tax.
There are also tax incentives for overseas fund managers: there is a special tax rate of 8 % on variable employment remunerations for 10 years for such individuals, as long as their liabilities are more than €10k.
Individuals that qualify for the non-dom status are exempt from tax on dividends and interests. Likewise, Cyprus has double taxation treaties that provide hefty reductions or even exemptions from withholding taxes on dividends, interests, royalties, and pensions of foreign sources.
One of the most significant advantages is the fact that any foreign-sourced dividends are entirely tax-free. That means that capital earnings coming from foreign sources can be freely moved and kept and distributed internationally without taxes. Some other countries, such as the UK and Ireland, also offer a non-dom program, but in those cases, it is generally related to complex tax regulations that provide no benefits. That is not the case in Cyprus.
These conditions apply for both individuals with non-dom status and companies registered in Cyprus.
Now, the corporate tax in Cyprus is a mere 12.5 % with a 2.5 % tax for licenses and similar income. A company is considered a Cypriot tax resident if its effectively managed and controlled from Cyprus.
Offshore companies’ payments are tax-deductible for Cypriot companies as business expenses. Likewise, if the company in Cyprus owns shares of another company, all dividends are tax-free. Income from securities and most investments are generally tax-free.
The business address of a company can be registered in the private residency of the major shareholder. This is beneficial for non-dom individuals because renting costs can count as business expenses.
Aside from this wonderful frame, Cyprus offers some tax benefits to certain types of companies. For example, holding companies can be redomiciled out of Cyprus, if the other country allows that. Holding companies have tax exemptions on disposal and trading of securities (shares, debentures, bonds, options on titles, and many others of companies in Cyprus or abroad).
There is a 20 % capital gains tax that applies only to:
- Immovable property in Cyprus
- Shares in companies whose property consists of immovable property in the country
- Shares of companies that partake in a company that owns immovable property in Cyprus and at least 50 % of the market value of the shares comes from the immovable property
Dividend income received from Cyprus tax resident companies, from foreign companies, or from overseas, permanently established, Cyprus holding companies is fully exempt from corporate tax. The only exemption is if the dividends are deductible for determining foreign taxes of the income of the company that pays the dividend, in which case, it is subject to the 12.5 % corporate tax. Likewise, for foreign dividends, the exemption will not apply if these two conditions hold:
- More than 50 % of the activities of the overseas paying company come from passive income.
- The tax burden of the foreign company income is 50 % lower than the Cyprus corporate tax rate.
Dividends and interests paid by a Cyprus resident company to non-resident shareholders and royalties paid from Cyprus (excepting intellectual property used in Cyprus, in which case there is a 10 % withholding tax) are not subject to withholding tax. Dividends received from non-resident companies are exempt from the SCD (also known as Defense tax) under certain conditions.
- Re-organization, such as merging, demerging, transfer, or exchange of assets between Cyprus resident companies and/or non-residents are fully tax-exempt.
- Company losses can be carried to the following year and set off against future profits. This process is allowed for five years.
- There are no estate duties, wealth tax, gift tax, or inheritance tax
$170,000
$2,500,000
$350,000
$1,400,000
$395,000
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