IMPORTANT UPDATE: It’s official, Cyprus closed its popular citizenship by investment program on 1 November 2020. What this means is investors will no longer be able to directly acquire a Cypriot passport by investment.
A new program has taken place, however. The Cyprus Golden Visa provides individuals with an alternative route to permanent residency in Cyprus. Those looking for European citizenship can also apply to the Malta citizenship program, which offers a direct investment route to a Maltese passport.
According to many taxation experts, not long after the fall of the Berlin Wall, the legislature of Cyprus built up its nation as a tax haven for foreign investors with a particular focus on attracting Russian oligarchs, Eastern European citizens and organizations. By offering incredible incentives under its “Cyprus Tax for Non-Residents” legislations, the Republic became famously known as an investment hub among high-net-worth-individuals, foreign investors, corporations, and expats across the globe.
With its strategic location, developed legal system, full EU membership, business-friendly environment, strong and educated workforce, competitive income tax rate, and numerous personal tax incentives, Cyprus became the number one place to establish business presence over the following three decades.
As of 2019, however, the Republic lost its official title as a tax haven as the Cyprus corporate tax rate was raised by their government to 12.5 percent, matching that of Ireland and Liechtenstein. Yet, despite the loss of its crowning title, the country continues to provide its citizens and expatriates great taxation policies and incentives to continue feeding its economy.
In this article, you will learn about:
General Taxes Imposed By Cyprus’ Taxation System
Cyprus’ Taxation System imposes a specific set of taxes on all of its tax residents, and subjects them to income taxation on their worldwide income regardless of their domicile status. The Cypriot tax authorities do, however, provide certain exemptions and allowances for their residents and non-tax residents. One example would be that, if an individual’s annual taxable income amounts to €19,500 or less, it is considered exempt from taxation. Another example would be the exemption of non-domiciled residents from paying taxes on income accrued from dividends and capital gains.
With those exemptions aside, the general taxes that have to be paid to the Cypriot tax authorities are:
- Personal Income Tax (PIT)
- Special Defense Contribution (SDC)
- Social Security Contributions
- General Health System (GHS)
- Capital Gains Tax (CGT)
- Consumption Taxes – or Value-Added Taxes (VAT)
- Immovable Property Transfer Fee
- Immovable Property Transfer Levy (IPTL)
- Immovable Property Tax (IPT)
Eligibility for The Cyprus Tax for Non-Residents
The Cypriot income tax law determines tax residency based on an individual’s residence status, with the general rule deeming any individual who spends more than 183 cumulative days in one calendar year in the Republic a resident of Cyprus, and thereby a tax resident.
As of July 14, 2017, the Cypriot Parliament amended Section 2 of their Income Tax Law (ITL) regarding tax residency to state that individuals may also be viewed as Cyprus tax residents on the condition that they fulfill the criteria of the “60 day rule”, with the amendment being deemed effective as of January that year.
The “60 day rule” applies to anyone who spends that amount of days in the Republic in one Cyprus tax year – between January 1 and December 31 – and happens to meet all of the following criteria:
- Does not spend over 183 cumulative days that year in another country
- Is not considered a tax resident in another country
- Maintains a permanent home in the Republic – either owned or rented
- Conducts business in Cyprus, whether as a business owner or an employee
- Has other defined ties to Cyprus
On the condition that the individual’s employment, business, or holding of an office is terminated during that year, they would no longer be considered a Cyprus tax resident as of that same tax year.
Calculating Days In and Out of Cyprus
For a person to determine whether their income falls under the taxation category of ‘income tax in Cyprus for expats’, or ‘income tax in Cyprus for residents’, they would have to combine the total amount of days the have stayed in the country that year, following this calculation format:
- The day of arrival in Cyprus counts as a day of residence
- The day of departure from Cyprus counts as a day of non-residence
- Arrival in and departure from Cyprus in the same day counts as a day of residence
- Departure from and arrival in Cyprus in the same day counts as a day of non-residence
Cyprus Tax for Non-Residents & Tax Exemptions
Tax residents of Cyprus have to pay general and foreign taxes on their worldwide income at established tax rates ranging from 20 percent up to 35 percent, depending on their annual income. Non-residents, however, are subject to taxation only on income they accrue from Cypriot establishments, or any business conducted in the Republic.
| Taxable Income Band (EUR) | National Income Tax Rates |
|---|---|
| 0 to 19,500 | 0% |
| 19,501 to 28,000 | 20% |
| 28,001 to 36,300 | 25% |
| 36,301 to 60,000 | 30% |
| 60,000+ | 35% |
Non-residents of Cyprus are provided with plenty of exemptions and incentives to retain their operations and investments in Cyprus. These would include exemptions on employment income, exemptions on capital gains, VAT exemptions, and more.
Tax Exemptions on Employment Income Generated in Cyprus
Expats relocating to the Republic of Cyprus are eligible for one of two income tax exemptions on their Cypriot employment income, regardless of their residency or domicile status. These would be:
- 50 percent exemption on remuneration exceeding €100,000 per annum, gained from any employment exercised in Cyprus. This exemption is applicable for ten years, starting from the individual’s first year of employment in the Republic, provided that they:
-
- Were a non-resident of Cyprus prior to the commencement of their employment;
- Have not been a tax resident of Cyprus the year prior to their employment;
- Have not been a tax resident for three or more tax years out of the five Cyprus tax years immediately prior to their employment.
- 20 percent exemption or €8,550 (whichever is lower) on gross taxable income generated from an employment exercised in Cyprus by any individual who was a non-resident prior to the commencement of their employment. This exemption is applicable for five years to qualifying individuals who commenced their employment in the Republic between 2012 and 2025, and starts from the tax year following the year of their employment.
According to PWC, the Cypriot Minister of Finance announced their government’s intention to introduce amendments to the 50 percent exemption. These amendments are expected to commence in the year 2022, and would include lowering the threshold of the minimum salary down to €55,000, and increasing the years for which the exemption would apply to 17.
Tax Exemptions on Employment Income Generated Overseas
Chargeable income that is accrued by salaried services performed outside of the Republic of Cyprus for more than 90 days in one Cyprus tax year, and provided to a non-Cyprus tax resident employer, or an overseas, permanent establishment of a Cyprus resident employer is completely exempt from Cyprus’ personal income taxation according to the Cyprus Tax for Non-Residents.
Tax Exemptions on Dividend and Interest Income
Cyprus has tax treaties with over 65 countries that offer nil or reduced withholding tax rates on all dividends, interest, royalties, and pensions received from foreign organizations and businesses. This makes non-domiciled individuals, regardless of their tax residency status in Cyprus, exempt from paying the Cyprus dividend income tax on profits arising out dividends and interests.
Tax Exemptions on Capital Gains
Although the Capital Gains Tax (CGT) in Cyprus is imposed at a rate of 20 percent on gains that arise from the disposal of any immovable property located in Cyprus, including that of shares in companies that directly own those properties, there are many instances where the disposal of immovable property is not subject to the Cypriot CGT. The following cases are where the exemption is applicable:
- Land, as well as land with buildings, acquired at market value from unrelated parties anytime between July 16, 2015 and December 31, 2016 are exempt from CGT upon their disposal. This exemption excludes exchanges, donations and foreclosures.
- Income generated from the disposal of shares, bonds, or other similar financial investments by a non-Cypriot resident is exempt from taxation. Non-residents will, however, be required to make a contribution to the Republic’s General Health System at a rate of 2.65 percent.
- Gifts between parents and children, spouses, or relatives up to the third degree
- Gifts to a company where the shareholders are all members of the donor’s family, on the condition that they remain to be so for five years after the date of transfer
- Gifts by a family company to its shareholders, on the condition that the property was originally acquired by way of gift, and that it is kept by the new shareholder for at least three years
- Gifts to the government
- Donations to charities
- Donations to political parties
- Transfer of property arising on the occurrence of death
- Transfers of property arising from internal reorganizations
- Exchange or disposal of property under the Agricultural Land Consolidation Laws, with the exemption including gains accrued from an exchange of property that are used to acquire new property. In case a new property is acquired, the tax would be implemented upon the disposal of that new property
- Disposals arising from expropriations
- Disposals of non-Cypriot real estate
Tax Exemptions on Value-Added Tax (VAT)
The Cyprus VAT rate stands at 19 percent. However, there are certain goods and services in Cyprus that are tax exempt from VAT, and they include:
- The leasing of residential buildings
- Most financial, insurance, and banking services
- Most medical, hospital and dental care services
- Certain educational, cultural, and sports activities
- Supplies for second-hand buildings
- Postal services provided by Cyprus’ national postal authority
- Betting coupons for horse racing and football, as well as lottery tickets
- Management services provided to mutual funds
Other Tax Exemptions
The Cyprus Income Tax Law provides other tax exemptions for residents and non-residents, including exemptions from:
- Estate duty tax
- Wealth tax
- Gift tax
- Inheritance tax
- Lump sum received from a retiring gratuity
- Lump sum received from commutation of pension
- Lump sum received as compensation for a death or an injury
Other Benefits
Cyprus’ Tax for Non-Residents acts as a huge benefit to those who move around a great deal, or are not residents anywhere in the world – otherwise allegedly known as ‘monetary migrants’. It gives them a perpetual base in which they can invest their finances.
Cyprus also adopts a split-year approach, meaning that if an individual arrives in the second half of the year, they will not be considered a Cypriot tax resident until January 1 of the following year – on the assumption that they have stayed in Cyprus for more than 183 days that year. If, however, an individual arrives in Cyprus by the end of April, for example, and they spend over 183 days in the Republic that year, they become tax residents as of the date of their arrival.
Cyprus’ double taxation treaties enable individuals to bypass paying taxes twice on the same taxable income by considering the individual’s domicile, regardless of their residence status. The Republic also provides a residency by investment program – known as Cyprus Investor Immigration Program, whereby investors and their family members can obtain a permanent residency in Cyprus for a minimum investment value of €300,000. This provides them with full residency rights in Cyprus, and visa-free travel across the European Schengen Zone and 142 other countries.
Although the cost of living in Cyprus may differ from one individual to another, those who do not seek to live in the country and only invest in it may be pleased to learn about the returns on real estate in Cyprus.
Frequently Asked Questions about the Cyprus Tax for Non-Residents
Are taxes high in Cyprus?
Tax residents of Cyprus have to pay general and foreign taxes on their worldwide income at established tax rates ranging from 20 percent up to 35 percent, depending on their annual income. Non-residents, however, are subject to taxation only on income they accrue from Cypriot establishments, or any business conducted in the Republic, and can benefit from tax exemptions.
Do foreigners pay tax in Cyprus?
Foreigners living in Cyprus for a period less than 183 days in one Cyprus tax year – January 1 to December 31 – only pay taxes on income they accrue from Cypriot establishments, or any business conducted in the Republic. They are also provided with tax exemptions in Cyprus and the possible benefit of a double taxation treaty with their country of domicile.
Does Cyprus have income tax?
The Cypriot government raised their corporate tax rate to 12.5 percent in 2019, which is still considered low in comparison to most of the European countries. The general income tax rate imposed by the Cypriot government on tax payers ranges from 20 percent up to 35 percent, depending on their gross annual income. If an individual’s annual taxable income amounts to €19,500 or less, it is considered exempt from taxation.
Is tax low in Cyprus?
Tax rates in Cyprus are generally low in comparison to other countries. Additionally, the Republic provides tax exemptions and incentives to Cypriot tax residents, non-tax residents, and foreign investors.
Is Cyprus a tax haven?
Cyprus was once considered a tax haven among foreign investors, corporations, and high-net-worth-individuals since it had one of the lowest corporate tax rates in the world. As of 2019, however, it lost its crowning title as the government raised their corporate tax rate to 12.5 percent, matching that of Ireland and Liechtenstein. Nevertheless, Cyprus has a generally low income tax rate and provides plenty of tax exemptions and incentives.
Is a non-resident liable to pay tax in Cyprus?
Non-residents are subject to taxation in Cyprus only on income they accrue from Cypriot establishments, or any business conducted in the Republic. Non-tax residents of Cyprus can also benefit from Cypriot tax exemptions and double taxation treaties.
