Income Tax

Tax Charge

Resident in Cyprus – In the case of a person who is tax resident in Cyprus, tax is levied on all income accruing or arising from sources both within and outside Cyprus, in respect of:

  • Profits or other benefits from any business
  • Profits or other benefits from any office or employment
  • Dividends, interest or discount
  • Rents, royalties or other profits arising from property
  • Any amount or consideration in respect of any trade goodwill reduced by any amount incurred for the purchase of such trade goodwill

Non-Resident in Cyprus – In the case of a person who is tax resident in Cyprus, tax is levied on the income accruing or arising from sources in Cyprus only, in respect of:

  • Profits or other benefits from a permanents establishment situated in Cyprus
  • Profits or other benefits 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
  • The 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

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

Definition

Resident in Cyprus, when applied to an individual, means an individual who stays in Cyprus for a period or periods exceeding in aggregate 183 days in the year of assessment and, when applied to a company, means a company whose management and control is exercised in Cyprus.

Permanent Establishment (OECD Model definition) means a fixed place of business through which an enterprise’s business is wholly or partly carried on, and includes a place of management, branch, office, factory, workshop, mine, oil or gas well, quarry or any other place of extraction of natural resources.

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

Exemptions
Details Individuals Other Persons

Income from interest. Interest accruing to any person from the ordinary carrying on of any business including any interest closely connected with the ordinary carrying on of the business, is not exempted, but included in the calculation of profit

100% 100%
Dividends 100% 100%

Remuneration from any office or employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his employment. This exemption applies for a period of three years commencing from 1 January following the year of employment’s commencement. For employments that start during or after 2012 the exemption applies for a period of 5 years starting from the year following the year of commencement of the employment. This exemption applies for up to 2020. This exemption may not be claimed in addition to the immediately below mentioned 50% exemption for employment income.

20% of the remuneration with a maximum amount of €8.550 annually
Remuneration from any office or employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his employment. The exemption applies for a period of 10 years for employments starting as from 1 January 2012 provided that the annual remuneration exceeds €100.000. This exemption does not apply if for employments starting as from 1 January 2015 the individual was a Cyprus tax resident for 3 (or more) tax years out of the 5 tax years immediately prior to the tax year of commencement of the employment nor in the preceding tax year. 50% of the remuneration
Profit from the sale of securities 100% 100%

Profit from a permanent establishment situated outside Cyprus, unless the permanent establishment – directly or indirectly – engages more than 50% in activities, which lead to investment income, and the foreign tax burden is substantially lower than the tax burden in Cyprus (practically < 5% headline tax). From 1 July 2016, taxpayers may elect to tax the profits earned from a foreign permanent establishment, and apply for a tax credit for the foreign taxes incurred on the foreign permanent establishment profits.

100% 100%

Remuneration from the tendering outside Cyprus of salaried services for a total aggregate period in the year of assessment of more than 90 days to an employer not resident in Cyprus

100%

Foreign exchange (FX) gains both realized and unrealized, except from FX gains arising from the trading in foreign currencies and related derivatives.

100%

Deposits with the Cyprus Housing Finance Corporation (up to 25% of total gross income for schemes which started up to 30 April 2003)

40%

Lump sum payments on retirement or pension’s commutation, or a gratuity on death.

100%

Capital sums from life insurance or approved provident funds

100%
Income from scholarship or other educational endowment 100%

Income of any religious, charitable or educational institution of a public character

100%

Income of any co-operative society in respect of transactions with its members

100%

Emoluments from an institution’s foreign officers exercising educational, cultural or scientific function

100%

Emoluments of foreign diplomatic and consular representatives, if not citizens of Cyprus

100%
Income of any local authority 100%

Income of any approved pension or provident fund or any insurance fund

100%

Income of any company formed exclusively for the purpose of promoting art, science or sport

100%
Pensions and special grants under special legislation 100%
Widow’s pensions 100%

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

Capital Allowances
Details Annual Wear & Tear Allowance %
Industrial buildings 4
Agricultural buildings 4
Commercial buildings 3
Hotel buildings 4
Machinery, plant and furniture 10
Machinery and equipment of agricultural and animal husbandry business 15
Computer hardware and operating software 20
Application software

-Up to 1.709
-Over 1.709

100
33 1/3
Tools 33 1/3
tractors, excavators, trenches, cranes, and bulldozers 25
Motor cars (except saloons) and motorcycles 20
New Cargo Ships 8
New Passenger Ships 6
Second hand cargo and passenger ships and additional expenditure

The cost is written off over the expected useful life of the ship based on the certificates issued by the Shipping Registry Organization

Sailings vessels 4 1/2
Ship launching machinery 12 1/2
Used ships In accordance with special agreement

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

Individuals’ Deductions
Details Rate %
Expenses of rented property 20% of the rents
Interest paid in respect of rented buildings 100%
Subscriptions to unions or professional associations 100%
Donations to approved charitable institutions, supported by receipts 100%
Social insurance contributions, life insurance premiums and contributions to approved pension funds or medical funds Up 1/6 of taxable income before the deduction of these allowances
The life insurance should be taken on the taxpayer’s life and not on his/her spouse’s. The allowance granted for insuring the life of the spouse is still valid for policies effected before 1 January 2003
The annual premiums are restricted to 7% of the insured amount
In the case of cancellation of a life insurance policy within 6 years from the day of its issue, a percentage of the premiums, which were previously allowed, is taxable as follows:-Cancellation within 3 years
-Cancellation from 4 to 6 years
30%
20%

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

Companies’ Allowed Deductions

For the purpose of ascertaining the chargeable income, there shall be deducted all outgoings and expenses wholly and exclusively incurred by the company, including:

  • Repair of premises, plant, machinery and means of transport
  • Ordinary annual contributions paid by an employer to social insurance and approved funds on employees’ salaries
  • Employer’s contributions to:
    Medical fund for employees – 1 % on employee’s remuneration
    Provident/Pension fund for employees -10% on employee’s remuneration
  • Interest expense incurred to acquire the 100% of the share capital of a subsidiary company, provided that the subsidiary does not have either (directly or indirectly) any assets that are not used in the business. If the subsidiary has either (directly or indirectly) assets that are not used in the business then the interest deduction is restricted to the amount which relates to assets used in the business. This applies for acquisitions of subsidiaries from 1 January 2012.
  • New equity introduced into a company as from 1 January 2015 in the form of paid up share capital or share premium is eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated using a reference interest rate on the new equity. The reference interest rate is the yield of the 10 year government bonds (as at December 31 of the prior tax year) of the country in which the new equity is invested in the business of the company plus a 3% premium. The interest rate cannot be lower than the yield of the 10 year Cyprus government bond as at the same date plus a 3% premium. For 2016 the minimum relevant interest rate is 6,685%. A taxpayer may elect not to claim all or part of the NID for a particular tax year. Specific anti-avoidance provisions also apply. The NID deduction cannot exceed 80% of the taxable profit as calculated before applying the NID. In case there are losses, the NID will not be available and this means that the NID cannot create or increase a tax loss.
  • Royalty income, embedded income and other qualifying income derived from qualifying intangible assets as provided in the ‘new’ Cyprus intellectual property (IP) box (this provision applies with effect from 1 July 2016)(1): 80% of the net profit as calculated using the modified nexus fraction.
  • Royalty income, embedded income and other qualifying income derived from qualifying intangible assets in the ‘old’ Cyprus IP box: 80% of the net profit
  • Bad debts of any business
  • Expenditure for scientific research
  • Donations or contributions made for educational, cultural or other charitable purposes without a limit
  • Expenditure for the maintenance of a building in respect of which there is a Preservation Order. Up to €700, €1.100 or €1.200 per square meter (depending on the size of the building)
  • Interest in relation to the acquisition of business assets used in the business
  • Entertainment expenses for business purposes: Lower of €17.086 or 1% of the gross income of the business
  • Contributions to a fund approved under regulations, for educational purposes and maintenance of an individual attending any university, college, school or other educational institution
  • Expenses in relation to rents receivable
  • Interest relating to a rented property

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

Not – Allowed Deductions
  • Expenses and Disbursements not wholly or exclusively paid for acquiring the income
  • Expenditure which is not supported by appropriate supporting documentation as required by the relevant Regulations
  • Expenses of a private motor vehicle – whole amount
  • Expenses of business entertainment, including hospitality of any kind, made in connection with a business and that exceeds 1% of the gross income of the business. In case that these expenses do not exceed 1% of gross income, then the allowable deduction is up to a maximum of ₤17.086
  • Interest applicable to the cost of purchase of private motor vehicle irrespective of whether it is used in the business or not, or any other asset not used in the business. This provision does not apply after the lapse of seven years from the date of purchase of the relevant asset
  • Wages and salaries for services offered within a tax year on which social insurance or other contributions have not been paid in the year in which they were due.
  • Domestic or private expenses including the cost of travelling between the place of residence and the place of work
  • Rent of premises owned and used by the person carrying on of a business
  • Remuneration of interest on capital paid or credited by the person carrying on business
  • Cost of goods taken out of the business for private use
  • Any sum employed or intended to be employed as capital
  • Expenditure for improvements, alterations or additions to immovable property
  • Sums recoverable under an insurance or contract of indemnity
  • Rent or cost of repairs of premises not incurred for the purposes of earning the income
  • Taxes
  • Payments of a voluntary nature

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

Individuals Tax Rates
Taxable Income ₤ Tax Rate % Amount of Tax ₤ Accumulated 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
36.001 – 60.000 30 7.110 10.885
Over 60.001 35

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

Corporate Tax Rates
Taxable Income ₤ Tax Rate %
0 – 1.000.000 10

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

Special Tax Rates
Details Rate %
Foreign pensions of individuals:-Up to €3.420
-Over €3.420
0%
5%
The gross amount of any intellectual property rights, royalty, other exploitation rights, premium, compensation or other similar income, derived from sources within Cyprus by any non-resident person, is subject to withholding tax (subject to DTT / use of Interest & Royalties Directive). If rights are used outside Cyprus then 0% is applicable. 10%
The gross amount of any rental in respect of the showing of cinematograph films in Cyprus, derived by any non-resident person, is subject to withholding tax (subject to DTT / use of Interest & Royalties Directive). 5%
The gross income derived by an individual non-resident in Cyprus, from the exercise of any profession or vocation in Cyprus or of public entertainers including football clubs and other athletic missions, is subject to withholding tax. 10%
The gross income derived within the Republic by a non-resident person that has no permanent establishment in Cyprus in relation to services performed in the Republic with respect to the extraction, exploration or exploitation of the continental shelf, subsoil or natural resources, as well as the installation and exploitation of pipelines and other installations on the ground, the seabed or above the surface of the sea, is subject to withholding tax. 5%
The gross income derived from sources within the Republic, for technical assistance provided by any non-Cyprus resident person, is subject to withholding tax. Such income is exempt from withholding tax if the services are provided by a permanent establishment in Cyprus. 10%

Payment of tax withheld
Tax withheld on payments to non Cypriot residents should be paid to the tax department by the end of the following month.

In case the tax withheld is not paid on time, an additional penalty of 5% is imposed on the tax withheld in addition to any interest that may be imposed.

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

Tax Losses

Generally, loss from one source of income is set-off against income from other sources in the same year. Any loss remaining after the set-off is carried forward over the next five years.

Losses in respect to the year 1997 and after, which were not set-off against profits up to the year 2002, may be carried forward to the year 2003 and the following years.

In case there is any change in the ownership of the company’s shares and a substantial change in the company’s nature of the business, within any three-year period from the year of the loss, then the loss cannot be carried forward to the following years.

Group Relief

Current year tax losses may be surrendered by one Cyprus tax resident group company to another.

A group company which is tax resident in another EU country may also surrender current year tax losses to a Cyprus tax resident company, provided such company firstly exhausts all possibilities available to utilise its tax losses in its country of residence or in the country of any intermediary EU holding company.

Two companies shall be deemed to be members of a group if:

One is by 75% subsidiary of the other, or

Each one separately is 75% subsidiary of a third company

Group relief is available if both companies are members of the same group for the entire tax year.

The interposition of a non-Cyprus tax resident company does not affect the eligibility for group relief as long as such company is tax resident in either an EU country or in a country with which Cyprus has either a tax treaty or an exchange of information treaty (bilateral or multilateral).

Where a company has been incorporated by its parent company during the tax year, this company will be deemed to be a member of this group for group relief purposes for that tax year.

Losses incurred by any person from any business carried on outside Cyprus, can only be set-off from the same persons’ income from other sources for the same year.

In the case where a business owner, including a partnership, converts his business into a company, any of the owner’s accumulated losses may be carried forward to the company.

Losses of Permanent Establishments (PE) situated outside Cyprus can be offset against profits arising in the Republic. However, in the future when profits arise in the PE, an amount equal to the losses previously utilized will be included in the taxable income of the resident company (“claw-back provisions”).

For more detailed information about Income Tax, please either scroll up or down this page (quicker) or click below to go to the relevant section:

Tax Charge; | Definition; | Exemptions; | Capital Allowances; | Individuals’ Deductions; | Companies’ Allowed Deductions; | Not – Allowed Deductions; | Individuals Tax Rates; | Corporate Tax Rates; | Special Tax Rates; | Tax Losses; |

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