Cyprus Tax Rates: tax benefits and laws explained

Cyprus’ taxation system obliges its tax residents to pay a specific set of taxes, including income taxation on their worldwide income, regardless of their residence status.

Foreigners who spend more than 183 days in the country usually become its tax residents: they pay taxes and receive benefits. The Government of Cyprus has simplified this rule: people who want to become tax residents of Cyprus can now stay in Cyprus for at least 60 days during the tax year instead of 183.

The 60-day rule provides for five requirements:

1. Do not reside in any other country longer than 183 days.

2. Not to be a tax resident of other states during the tax period.

3. To carry out any activity in Cyprus, for example, to have a job in Cypriot companies.

4. Own residential real estate in Cyprus.

Cyprus provides its citizens and expatriates with excellent taxation policies and incentives. To be a tax resident, foreigners can have a permanent residence by investing in real estate or funds.

A person who is a non-tax resident is only taxed on income arising from sources in Cyprus.

A company can be considered a tax resident when managed or controlled from Cyprus.

Cyprus-tax residents must pay general and foreign taxes on their income worldwide at tax rates ranging from 20—35%, depending on their annual income. If your annual taxable income amounts to €19,500 or less, you are exempt from this tax.

There is a special regime for retirees: 5% of the pension payments if they exceed €3,420 per month.

Taxes for insurance companies. These companies are required to pay corporate tax as other tax-resident companies. However, there is an exception when the corporate tax payable on the taxable profit of a life insurance business is less than 1.5% of the gross premium. In this case, the difference is paid as an additional corporate tax.

Taxes for shipping companies. Fully approved by the EU, the Cyprus Merchant Shipping Legislation provides an exemption from all taxation under the tonnage tax regime of qualifying ship owners and managers.

Cyprus also has a 9% reduced VAT rate on a restaurant, catering services, accommodation, hospitality, and other services.

A 5% reduced VAT rate applies to the renovation and repair of a property.

Stamp duty. This tax is determined depending on the purchase amount:

• stamp duty is not charged for the first €5,000;

• 0.15% for the purchase price from €5,001 to €170,000;

• 0.2% for the purchase price over €170,000.

Property transfer tax. When you buy a property in Cyprus, you must pay a transfer tax to complete the purchase. The Land Registry will assess the market value of the purchased property and charge the buyer transfer fees.

Transfer fees are the following:

• 3% on real estate worth up to €85,000;

• 5% if a property costs from €85,001 to €170,000;

• 8% if a property price exceeds €170,001.

There is a 50% discount on stamp duty, and transfer fees are not chargeable if VAT has been paid.

Services taxes. The Municipality or a Village Council determines the tax and rates for property owners. The cost will depend on the municipality or council where the object is located.

Capital gains tax. A 20% capital gains tax, or CGT, is charged on income from selling immovable properties in Cyprus or shares of companies that directly own real estate objects in Cyprus. This tax only applies to profit from selling an immovable property when the disposal is not subject to income tax.

Individual cost calculation for permanent residence in Cyprus

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The Defense Tax, or a Special Tax Contribution for Defense Purposes, consists of three parts:

• a tax on dividends received in Cyprus and abroad;

• a tax that consists of interest income earned in Cyprus and abroad;

• capital gains from the sale of securities and corporate rights.

A non-domicile tax resident is exempt from paying defence tax.

You can check a tax calendar to pay all taxes on time, be up-to-date, and avoid paying unnecessary penalties.

Cyprus’ taxation system offers numerous exemptions and benefits for non-residents on capital gains, employment income, VAT exemptions, and many others.

For example, non-Cyprus residents are exempt from tax on interest, dividends, and royalties in the whole amount. Non-residents are also exempt from income taxes on the sale of securities and capital sums accrued to individuals due to any payments to approved funds.

Cyprus has double tax treaties with more than 50 countries. Most of these countries follow the OECD Model Convention, but a tax treaty with the United States is also adapted to the US Agreements.

The Cyprus tax policy is softer than in many countries, so numerous business owners and individuals choose this country as their residence. Participating in the investment program is the fastest way to get a Cyprus permanent residency.

The Government of Cyprus has launched a program that allows foreigners to get permanent residency by investment. The minimum investment amount is €300,000.

You can invest in residential property, commercial real estate, local investment fund units, or Cypriot companies shares. Five years after receiving the residency, you can apply for citizenship.

Buying a residential property. Foreigners can buy one or two properties for €300,000+ in new buildings. They also have to pay a value-added tax of 19%; if housing is purchased for their own usage, the VAT is 5%.

Investing in commercial real estate. Foreigners can buy one or two commercial objects for €300,000+ in new buildings or the secondary market.

Buying units of local funds for at least €300,000 and only from collective investment funds of the RAIF, AIF, and AIF LNP types.

Purchasing shares of Cypriot companies for €300,000 and more, which have five employees and make a profit on the island.