Tax Facts

INCOME TAX

Individuals

Imposition of tax

Where an individual is a resident in the Republic, tax is imposed on income accruing or arising from sources both within and outside the Republic.

Where an individual is not a resident in the Republic, tax is imposed on income accruing or arising only from sources within the Republic.

Resident in the Republic is an individual who is present in the Republic for a period exceeding 183 days in a tax year.

For the purpose of calculating the days of residence in the Republic:

  • the day of departure from the Republic is considered to be a day out of the Republic
  • the day of arrival into the Republic is considered to be a day in the Republic
  • the arrival into the Republic and departure from the Republic on the say day is considered to be a day in the Republic and
  • the departure from the Republic and return to the Republic on the same day is considered to be a day out of the Republic

Tax rates

Taxable Income

Tax Rate

Tax

Cumulative 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

Exemptions

The following are exempt from income tax:

Widows pension granted under the Social Insurance Laws or in accordance with any pension scheme approved under regulations

 

The whole amount

Lump sum received as retiring gratuity, commutation of pension, death gratuity or as consolidated compensation for death or injury

The whole amount

Lump sum repayment from life insurance schemes or from approved provident funds

The whole amount

Interest incomeInterest income arising in the ordinary course of business, including interest closely connected with the carrying on of the business, is not considered as interest but trading profit and is not exempt

 

The whole amount

Dividend income

The whole amount

Remuneration from any office or employment exercised in the Republic by an individual who was resident outside the Republic before the commencement of the employment. The exemption applies for a period of three years from 1st January following the year of commencement of the employment

 

20% of the remuneration or €8.550 (whichever is the lower)

Remuneration from any office or employment exercised in the Republic by an individual who was resident outside the Republic before the commencement of his employment in the Republic. The exemption applies for a period of 5 years starting from the first year of employment provided that the above income of the employee exceeds €100.00 per annum

 

Gains from disposal of securities including units in an open-ended or closed-ended collective investment scheme

 

The whole amount

Remuneration from the rendering outside the Republic of salaried services to a non-resident employer or to a permanent establishment outside the Republic of a resident employer for a total aggregate period in the year of assessment of more than 90 days

 

The whole amount

Profits from a permanent establishment maintained outsided the Republic (subject to certain conditions)

 

The whole amount

Rent of preserved building (subject to certain conditions)

The whole amount

Deductions
The following are deducted from income:
Interest relating to the acquisition of fixed assets used in the business

The whole amount

Expenses for letting of buildings

The whole amount

Interest in respect of the acquisition of a building for rental purposes

The whole amount

Subscriptions to trade unions or professional bodies

The whole amount

Expenditure for the maintance of buildings under preservation order (subject to certain conditions)

Up to €700, €1.100 or €1.200 per sq.m. (depending on the size of the building)

Donations to approved charitable organisation (with receipts)

The whole amount

Non-deductible expenses
The following expenses are not tax deductible:
Business entertainment expenses including hospitality expenses of any kind which are incurred for the purpose of the business

Amount in excess of 1% of the gross income or €17.086 (whichever is the lower)

Private motor vehicle expenses

The whole amount

Professional tax

The whole amount

Immovable property tax

The whole amount

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 purchase of the relevant asset

Expenditure which is not supported by invoices and relevant receipts or other supporting documentation as required by the relevant Regulations

 

The whole amount

Wages and salaries relating to services offered within the tax year on which contributions to the Social Insurance Fund, Redundancy Fund, Human Resource Development Fund, Social Cohesion Fund, Pension Fund and Provident Fund have not been paid in the year in which they were due, will not be tax deductible for the calculation of taxable income

 

The whole amount

In case the above contributions (including any penalties and interest) are paid in full within 2 years following the due date, such wages and salaries will be tax deductible in the tax year in which they are paid

Loans or financial facilities provided to company directors or individual shareholders

Any amount received as a loan or financial assistance by a company’s director, or by a company’s individual shareholder, or by his/her spouse, or by any relative up to a second degree is considered a monthly benefit equal to 9% p.a. calculated on the above amount. Such benefit, will be included in the individual’s income subject to Income Tax.

The amount of tax on the monthly benefit should be withheld from the individual’s monthly salary and paid to the Inland Revenue on a monthly basis under the PAYE system.

Companies

Where a company is resident in the Republic, tax is imposed on income accruing or arising both from sources in and outside the Republic.

Where a company is not resident in the Republic, tax is imposed on income accruing or arising only from sources in the Republic.

Resident in the Republic is a company that is managed and controlled in the Republic.

Tax rate 
Corporate income tax

12,5%

 Exemptions 
Interest income

The whole amount

Interest income arising in the ordinary course of business including interest closely connected with the carrying on of the business, and interest earned by open-ended or closed-ended collective investments schemes, is not considered interest but trading profit and is not exempt

 

Dividend income

The whole amount

Profit from the disposal of securities including the redemption of units or other ownership interests in an open-ended or closed-ended collective investment scheme

 

The whole amount

Profits from a permanent establishment maintained  outside the Republic (subject to certain conditions)

 

The whole amount

Rent of preserved building (subject to certain conditions)

The whole amount

Deductions 
Deductible from income are all expenses incurred wholly and exclusively for the production of income including:
Interest incurred for the acquisition of a fixed asset in the business The whole amount
Expenditure for the maintenance of buildings under preservation order (subject to certain conditions)

 

up to €700, €1.100 or €1.200 per sq. m.(depending on the size of the building)

 

Donations to approved charities (with receipts) The whole amount

 

Non-deductible expenses
The following are note deductible from income:
Business entertainment expenses including hospitality expenses of any kind which are incurred for the business amounts in excess of 1% of the gross income or €17.086 (whichever is the lower)

 

Private motor vehicle expenses The whole amount

 

Professional tax The whole amount

 

Immovable property tax The whole amount

 

Interest payable or deemed to be payable in relation to the acquisition of a private motor vehicle, irrespictive 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 purchase of the relevant asset

 

The whole amount
Expenditure which is not supported by invoices and relevant receipts or other supporting documentation as required by the relevant Regulations

 

The whole amount
Wages and salaries relating to services offered within the tax year on which contributions to the Social Insurance Fund, Redundancy Fund, Human Resource Development Fund, Social Cohesion Fund, Pension Fund and Provident Fund have not been paid in the year in which they were due will not be tax deductible for the calculation of taxable income

 

 The whole amount
In case the above contributions (including any penalties and interest) are paid in full within 2 years following the due date, such wages and salaries will be tax deductible in the tax year in which they are paid

 

Losses

Carry forward of losses

Losses are carried forward indefinitely. Losses for the years 1997 onwards which have not been offset against profits arising up to the year 2002, will be carried forward to 2003 and subsequent years without time restriction.

Group relief

Losses for the current year only can be surrendered by a group company to another group company. Group relief will be given provided that both companies are members of the same group for the whole of the tax year.

Two companies are considered to be part of a group for group relief purposes if:

  • one is a 75% subsidiary of the other, or
  • both are 75% subsidiaries of a third company

Loss of a permanent establishment outside the Republic

Losses arising from a permanent establishment outside the Republic can be offset against profits arising in the Republic. However, when a profit arises from such a permanent establishment, an amount equal to the losses that have been utilised in the past against profits arising in the Republic will be included in the taxable income

Insurance companies

  • losses of the life business can be offset against profits of the general business
  • losses of the life business can be offset against profits from other sources
  • losses of the life busines can be carried forward indefinitely

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 existance of a double tax treaty.

SPECIAL CONTRIBUTION FOR DEFENCE

Rates

All residents of the Republic are subject to defence contribution on the sources of income indicated below. Non residents are not subject to the defence contribution.

Dividends 20%
Interest income 15%
Interest received by an individual from Government Savings Certificates 3%
Interest received by an individual from Government Bonds 3%
Interest earned by an approved provident fund 3%
Interest earned by the Social Insurance Fund 3%
Rental income less 25%

Dividends

Exepmtions:

  • dividends received by a company resident in the Republic from another company resident in the Republic, excluding dividends paid indirectly after 4 years from the end of the year in which the profits which were distributed as dividends arose
  • dividends received directly or indirectly from dividends on which defence contribution has already been paid
  • dividends received by a company resident in the Republic or a company not resident in the Republic which maintains a permanent establishment in the Republic from a company which is not resident in the Republic

This exemption does not apply if the non-resident company paying the dividend engages directly or indirectly more than 50% in activities leading to investment income; and the foreign tax burded on the income of the dividend paying company is substantially lower than the tax burden of the Cyprus tax resident company or the non-resident company which has a permanent establishment in the Republic

Interetst income

Interest that is received as a resutl of the carrying on of a business activity, including interest closely connected to the ordinary activities of the business, and interest earned by open-ended or closed-ended collective investment schemes, is not considered interest for defence contribution purposes.

A person whose total annual income, including interest, does not exceed €12.000 who receives interest which has been subject to defence contribution at 15%, has the right to a refund of the amount of defence contribution suffered in excess of 3%.

Deemed distribution

A company resident in the Republic is deemed to have made a distribution of 70% of its profits after taxation* in the form of dividends at the end of the two (2) years from the end of the tax year in which the profits relate and must account for 20% defence contribution thereon.

*”Taxation”

The term “taxation” includes in addition to the corporate tax:

  • the Special Defence Contribution tax
  • the Capital Gains tax and
  • any tax paid abroad that has not been credited against income tax and/or special defence tax payable for the relevant year

A person who is a tax resident of Cyprus, who is deemed to receive dividends from a collective investment scheme, whose formation and operation is regulated by the Open-ended Collective Investments in Transferable Securities and Related Matters Law or any other law which regulates the formation and operation in the Republic of other collective investment scheme, is subject to defence contribution of 3% of the deemed dividend.

The amount of deemed dividend is reduced by the amount of actual dividend distributed during the two (2) preceding years and during the tax year to which the profits relate.

In cases where an actual dividend is paid after the two(2) years period, any deemed distribution reduces the actual dividend on which the defence contribution is withheld.

For the purpose of calculating the amount of the deemed distribution, “profits” mean the accounting profits arrived at using generally acceptable accounting principles, but after the deduction of any transfers to reserves as specified by any law. Any offset of group losses as well as any amounts, including any additional depreciation, which emanate or are the results of revaluation of movable and immovable property are ignored.

The deemed distribution provisions do not apply to profits which relate directly or indirectly to non-resident shareholders.

In the case of a person not resident in the Republic receiving dividends from a company which is resident in the Republic, emanating from profits which at any stage were subject to deemed distribution, the defence contribution paid as a result of the deemed distribution which is attributable to such person is refundable.

In the case where a company disposes an asset to its shareholder (individual) or to his or her relative of up to second degree or his or her spouse, without consideration or for consideration which is below the market value of the asset disposed, it is deemed that the company has distributed dividends to its shareholder, equal to the difference between tha market value of the asset and the amount of the consideration.

The above will not apply in case the asset was received by the company by way of a gift from its shareholder (individual) or from his or her relative of up to second degree or from his or her spouse.

Company dissolution

The aggregate amount of profits in the five(5) years prior to the company dissolution, which have not been distributed or be deemed to be distributed, will be considered as distributed on dissolution and will be subject to defence contribution at 20%.

Companies that are under voluntary dissolution or liquidation are obliged to submit within one(1) month from the date of the approval of the resolution, a deemed dividend  declaration and pay any special defence contribution in relation to the profits of the specific tax year and the two(2) preceding years.

The Commissioner has the right to issue an assessment for the purpose of collecting the special defence contribution in relation to the above.

The deemed dividend distribution provisions do not apply on any accounting profits arising during the dissolution or liquidation if the assets of the company are not sufficient for the repayment of its creditors and no amount is available to be distributed to its shareholders.

Where assets are distributed to the company’s shareholders upon the company’s liquidation or dissolution, which have a market value that exceeds the cost of their acquisition by the company, the deemed distribution provisions will apply. The amount of the dividend that is deemed to be distributed to its shareholders will be equal to the difference between the market value of the assets and the cost of acquisition of the particular asset by the company.

The deemed dividend distribution of profits that become realized upon the company’s dissolution or liquidation may not exceed the amount of the net assets distributed to the shareholders.

The dissolution of an open-ended or closed-ended collective investment scheme falls under the deemed distribution provisions but the undistributed profits will be subject to defence contribution of 3%.

These provisions do not apply in the case of dissolution under reorganisation, in accordance with certain prerequisites set out in Regulations or where the shareholders are not resident in the Republic.

Reduction of capital

In the case of a company’s capital reduction, any amounts paid to shareholder individuals in excess of the amount of the share capital that was actually paid by the shareholder will be treated as deemed dividend.

The buy back or redemption of units or other ownership interests in an opened-ended or closed-ended collective investment scheme is not considered a capital reduction and is not subject to defence contribution.

Tax credit for foreign tax paid

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

PROFITS FROM SHIPPING ACTIVITIES

The following are exempt from taxation in accordance with the provisions of the Merchant Shipping (Fees and Taxing Provisions) Law and are subject to tonnage tax:

  • The income of a qualifying ship-owner from the operation of a qualifying Cyprus, community and/or foreign (under conditions) ship, in a qualifying shipping activity.
  • The income of a qualifying charterer from the operation of a qualifying Cyprus, Community and/or foreign (under conditions) ship, in a qualifying shipping activity.
  • The income of a qualifying ship operator from the provision of ship management services of the crew and/or technical administration services
  • Dividends paid directly on indirectly from the profits mentioned above.
  • Salaries or other benefits paid to the masters, officers and the crew of a qualifying Cyprus ship in a qualifying shipping activity.

For the purpose of the above mentioned Law in the case of a Cyprus ship, the term “ship owner” includes also the bareboat chartered.