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Tax

The system of tax in Cyprus is one of the most convincing arguments for relocation to the island nation.

Income taxes in Cyprus are paid according to a progressive sliding scale; the higher your income the higher rate of tax you'll pay. As of 2013, citizens and residents paid between 20% and 30% in income tax above the 19,500 annual allowance threshold.


For the most part though, the tax laws are most beneficial for those who have concluded their working life, and have come to Cyprus for rest and relaxation, not employment.

Tax will be payable on income earned in Cyprus and overseas, but excepting a salary received overseas by an individual who meets the requirements of a "permanent resident" of Cyprus.

A foreign resident who is employed in Cyprus pays tax only on income earned in Cyprus.

To be considered a resident of Cyprus, residence of at least 183 days in Cyprus during any calendar tax year must be established or a life that is centred in Cyprus.

An employer is obligated to deduct, immediately, each month, the amount of tax and national insurance due from a salaried worker.

A self-employed individual is obligated to make advance payments on income tax that will be offset on filing an annual report. The advance payments are made in three equal payments.

The basic Corporate tax rate in 2013 is 12.5%. Shipping companies sailing under Cyprus flag pay zero tax on profits and dividend paid. Since Cyprus joined the European Union (EU) in 2004, it became both convenient, and financially efficient, for foreign citizens to have their pension paid in Cyprus rather than in their home country.


Dividends received are exempt from income tax (see also for Special Contributions for Defence Law provisions).

Foreign Pensions
Individuals receiving foreign pension can choose to be taxed on the following way:

  • Up to € 3.420 0%.
  • Over € 3.420 5%.


Inheritance tax in Cyprus has been abolished. 

Tax credit for foreign tax paid


Any tax suffered abroad on income subject to income tax will be credited against any income tax payable on such income irrespective of the existence of a double tax treaty.

Losses

Carry forward of losses
Losses are carried forward for relief over the next 5 year period. Tax losses from tax year 2007 can be transferred and used until 2012. Any losses up to the tax year 2006 will not be available to offset 2012 profits.

Exempt income
The main exemptions are as follows: 

Dividends received are exempt from income tax (see also for Special Contributions for Defence Law provisions).

Profits of a permanent establishment situated outside Cyprus of a Cypriot resident are exempt from tax. This exemption does not apply if the permanent establishment engages more than 50% in activities, which lead to investment income, and the foreign tax burden on the income of the permanent establishment is substantially lower than the tax burden of the Cypriot resident in the Republic.

The profit from the disposal of securities is exempt from tax irrespective of whether it is of capital or trading nature. Securities include shares, government stocks, debentures, bonds, founder’s shares and rights thereof.
Interest income, which is received in the ordinary course of a business, including interest closely connected to the ordinary course of business, is not exempt but is included in the taxable income of the business (see also, special contribution for defence law provisions in relevant section above).

The lower of 20% of the remuneration from an employment, which is exercised in the Republic by a person who was a non-resident before the commencement of his employment, and €8.550. This exemption applies for a period of three years from 1 January of the year following the year in which the employment commenced.

The 50% of the remuneration from an employment, which is exercised in the Republic by a person who was a non-resident before the commencement of his employment. This exemption applies for a period of five years starting from the first year or employment provided that the above income of the employee exceeds €100.000 per annum.

The emoluments from salaried services performed abroad for an aggregate period in the tax year exceeding 90 days, for a non resident employer.

Rental Income which derives from preserved buildings (under certain conditions).

Income received from widow's pension which is granted under the Social Insurance Laws or under any approved from regulations pension scheme.

The lump sum amount received from insurance schemes or any approved provident fund as repayment.
Income from scholarship or other educational endowment.