Tax-residency

A Cyprus tax resident individual is any person who is physically present in Cyprus for more than 183 days in a calendar year and is taxed on income accruing or arising from sources both within and outside the Republic.

A calendar year is the same as a tax year. It does not matter the purpose of being in Cyprus, nor is it a condition that a Cyprus tax resident person owns or rents accommodation in Cyprus. It is literally based on the number of days without any further conditions.

As of 1 January 2017, an individual will also be considered a Cyprus tax resident if he/she:

  • does not spend more than a total of 183 days in any country within a tax year; and
  • is not a tax resident of another country within the same tax year; and satisfies the following three conditions:
    • remains in Cyprus for at least 60 days during the tax year;
    • carries on a business in Cyprus or is employed in Cyprus or holds an office in a Cyprus tax resident company at any time during the tax year; and
    • maintains a permanent residence in Cyprus, which can be either owned or rented.

It is noted that, if the employment/business or holding of an office as per (b) above is terminated, then the individual would cease to be considered a Cyprus tax resident for that tax year under the 60 days tax residency scheme.

For calculating and meeting both the “183 days rule” and the “60 days rule”, the below are considered:  

  • the day of departure is considered a day outside of Cyprus;
  • the day of arrival is considered a day in Cyprus;
  • arriving in Cyprus and departing on the same day is considered a day in Cyprus; and
  • departing from Cyprus and arriving on the same day is considered a day outside of Cyprus.

Tax residents

TTax residents are taxed on income accruing or arising from sources both within and outside the Republic. Such income can derive from:

  • Trade or any office or employment;
  • Dividends and interest;
  • Rents and royalties from real estate or intellectual property;
  • Pensions and annuities;
  • Any amount or consideration in respect of any trade goodwill reduced by any amount incurred for the purchase of such trade goodwill;
  • Loans or financial assistance to a director, shareholder or relative up to second degree are taxable as a monthly benefit in kind equal to 9% pa on the loan amount, payable on a monthly basis by the company under the PAYE system.

Non-Tax residents

  • Income from a permanent establishment situated in Cyprus;
  • Income from any office or employment exercised in Cyprus;
  • Pensions derived from past employment exercised in Cyprus;
  • Rent from property situated in Cyprus;
  • Any amount or consideration in respect of any trade goodwill reduced by any amount incurred for the purchase of such trade goodwill;/li>
  • he gross income derived by an individual from the exercise in Cyprus of any profession or vocation, the remuneration of public entertainers and the gross receipts of any theatrical, musical or other group of public entertainers;
  • Directors’ fees and similar remunerations in their capacity as directors of companies considered to be tax resident companies of Cyprus.
  • Loans or financial assistance to a director, shareholder or relative up to second degree are taxable as a monthly benefit in kind equal to 9% pa on the loan amount, payable on a monthly basis by the company under the PAYE system.

Benefits in Kind

The taxation of benefits is provided in Article 5 of the Income Tax Law, according to which benefits from any office or employment, provided to an employee or to a member of his family either in cash or otherwise, are subject to tax.

Benefit in kind means the benefit that is, or is deemed to be, granted in connection with any employment or the holding of an office.

The rules apply with reference to benefits in kind provided to:

  • Employees, and
  • persons who hold or are deemed to hold an office.)
When the benefit is granted to a member of the family or household of the person who is employed or holds the office, then the benefit shall be deemed to be provided to that person.

Employers are required to keep records indicating how the value of the benefits in kind has been determined and such records should be available for inspection when requested by the Tax Department.

Since benefits in kind are taxed in the same way as salaries, the employer who will bear the cost of providing them will be able to deduct such cost from his taxable income under the same conditions that it would be deducted had it been a salary payment.

Any person providing "benefits in kind" to an employee and any company or corporation providing benefits to its officers, even in cases where it does not have employees, is considered as an employer by the Tax Department and should register on the Employers' Register and receive a T.I.C, which will enable the submission of the Employer's Return (T.D. 7).

The value of benefits in kind is taxed in the same way as the gross earnings, through the submission of the Form T.D. 7. Employers are required to declare the benefits in kind provided by them or by their connected companies.

Categories of Benefits in Kind

  • Benefits in kind in relation to cars - Benefits in kind that relate to cars can be classified into three types:
    • Use of car - A benefit in kind arises where there is a usual element of private use;
    • Commercial Cars (Van type)
    • Direct cash payments for car use
  • Accommodation and use of assets;
  • Other benefits in kind.

Exemptions

As a general principle, exemptions apply only to the extent where the payment or reimbursement to the employee is made against actual costs supported by payment receipts. They don't apply where the relevant benefit in kind takes the form of cash.

Other specific exemptions mentioned in the guide include amongst others:

  • Computer equipment
  • Telephone services
  • Childcare facilities
  • Goods consumed in the workspace
  • Newspapers
  • Awards for long-term service
  • Christmas parties and events
  • Subscriptions to professional bodies
  • Training Courses/scholarships to employees
  • Uniforms and specialized attire/li>
  • Recreation areas
  • Relocation expenses

Personal Income Tax Rates

Taxable Income €

Tax rate %

Amount of tax €

Cumulative amount of 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

60.001 and over

35



The following types of income are exempted from income tax:

  • Interest income (excluding interest income arising in the ordinary course of business or closely connected with the carrying on of the business)
    • nterest income may be subject to special contribution for defence
  • Dividend income
    • Dividend income may be subject to special contribution for defence
  • Lump sum repayment from life insurance schemes or approved provident funds
  • Profits from the disposal of securities/titles. Please click http://www.kpsa.com.cy/en/cyprus_information/cyprus_tax_regime.html (section: Circular ‘Titles’) for what is defined as security/title.
  • 20% (maximum €8.550) of the remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment. This exemption applies until the tax year 2020 (inclusive), and cannot be granted for a total period exceeding five years.
  • 50% of the remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment provided that the annual remuneration exceeds €100.000 (subject to certain specific conditions).
  • Remuneration from rendering services outside Cyprus to a non-Cyprus tax resident employer or to an overseas permanent establishment of a Cyprus tax resident employer for more than 90 days in a tax year.
  • Gains arising from a loan restructuring (please contact us for the exact definition of restructuring)
  • Foreign exchange gains excluding those arising from trading in currencies and related derivatives. However, the taxable person has the option to make a binding election to be subject to tax only on realised foreign exchange differences.
  • Lump sum received as retiring gratuity, commutation of pension, death gratuity or as consolidated compensation for death or injury.
  • Income from permanent establishment outside the republic (subject to certain specific conditions)
  • Rental income from preserved building (subject to certain specific conditions).

All expenses incurred wholly and exclusively for the purposes of generating taxable income and which are supported by proper and reliable documentation, can be considered as tax deductible. These can include the following:

  • Interest relating to the acquisition of assets used in the business or of a building for rental purposes;
  • Subscriptions to trade unions or professional bodies;
  • 80% of profits arising from the exploitation of intellectual property rights;
  • Donations to approved charitable organisations;
  • Scientific research expenditure
  • Amount invested for the acquisition of shares in innovative small and medium sized business (subject to conditions/restrictions apply)
  • Donations to political parties (subject to conditions/restrictions apply)
  • Business entertaining expenses over the amount of €17.086 or 1% of turnover, whichever is lower

The following expenses cannot be deducted from the income in the computation of taxable income:

  • Private motor saloon car expenses
  • Wages and salaries on which contributions have not been paid to the relevant funds (including provident funds), in the year they are due. If the contributions are paid within two years from the end of the relevant tax year, then they are tax deductible in that year.
  • • Expenses not supported by invoices or other supporting documentation • 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 is lifted after 7 years from the date of acquisition of the relevant asset.
  • Interest expense incurred for the acquisition of shares in a wholly owned (direct or indirect) subsidiary will be deductible for income tax purposes provided that this subsidiary does not own (directly or indirectly) any assets which are not used in the business. If this subsidiary does own (directly or indirectly) assets that are not used in the business, the interest expense that corresponds to the percentage of assets not used in the business will not be deductible. This applies to shares acquired from 1 January 2012.

Personal tax allowances

  • ocial insurance contributions, contributions to approved provident and pension funds, the general health plan, contributions to medical or other approved funds as well as life insurance premiums (subject to restrictions).
  • 7% of the annual life insurance premium
  • Cancellation of a life insurance policy within 6 years from the date it was entered into, part of the life insurance premiums already given as an allowable deduction will be taxable (subject to restrictions).
  • Payments relating to premiums paid to approved medical funds are tax deductible, provided that they do not exceed 1,5% of the gross salary income.

Tax credit for foreign tax paid

Any foreign tax paid can be credited against any Cyprus income tax payable on the same income.

Losses

Individuals who have an obligation to prepare audited financial statements may carry forward tax losses incurred during a tax year over the next five years, to be offset against taxable income. Where person, including a partnership, converts a business into a limited liability company, any unutilised tax losses can be transferred to the new company.