Cyprus - Income Tax

Income Tax

Taxation of international executives

Related content

Tax returns and compliance

Tax rates

Residence rules

Termination of residence

Economic employer approach

Types of taxable compensation

Tax-exempt income

Expatriate concessions

Salary earned from working abroad

Taxation of investment income and capital gains

Additional capital gains tax (CGT) issues and exceptions

General deductions from income

Tax reimbursement methods

Calculation of estimates/prepayments/withholding

Relief for foreign taxes

General tax credits

Sample tax calculation

 

All information contained in this document is summarized by KPMG Limited, the Cyprus member firm of KPMG International, based on the Cyprus Income Tax Law of 2002 (L.118(1)/2002), as amended, the Special Contribution for the Defence of the Republic Law of 2002 (L.117(I)/2002), as amended, the Assessment and Collection of Taxes Law of 1978 (L.4/1978), as amended , the Special Contribution for Employees Pensioners and Self-employed individuals of the Private Sector Law of 2011 (L.202(I)/2011), as amended, the Stamp Duty Law of 1963 (L.19/1963), as amended, the Capital Gains Tax Law of 1980 (L.52/1980), as amended, the Immovable Property Tax Law of 1980 (L.24/1980), as amended and the Social Insurance Law of 2010 (L.59(I)/2010), as amended.

Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

30th April of the year following the year of income. The deadline for submission of the personal income tax returns can be extended to 31st July, if the tax returns are submitted in electronic format via the Taxisnet System. 

What is the Tax Year-End?

31st December.

What are the compliance requirements for tax returns in Cyprus?

Residents

Individuals must file their income tax returns not later than 30 April (extended to 31 July if filed via the Taxisnet system) following the end of the tax year (31 December) in the instance where their gross income exceeds the tax free threshold of EUR19.500.

A claim for deductions and allowances (IR59) is prepared at the beginning of the tax year and a statement of taxable income (IR63) for the tax year must accompany the tax return when submitted.  

A self assessment computation should be completed on the tax return. In the instance where a tax liability arises from the self assessment computation, the tax should be paid by the 30th June following the end of the tax year (e.g By the 30th June 2016 for the 2015 tax year).

After receiving the completed return, the tax office will proceed to issue an assessment of the tax payable and will give credit for the tax deducted from remuneration during the year under the Pay-As-You-Earn (PAYE) system operated by the employer and for any tax paid by the individual through self assessment. If the tax assessment is correct, any tax due should be paid by the end of the month following the month in which the assessment is raised. If the tax assessment is not correct, a notice of objection must be lodged not later than the end of the month following the month in which the assessment is raised.

Non-residents

Non-tax resident individuals are charged to tax and required to file a return on income accruing or arising from sources within Cyprus i.e. income from employment exercised in Cyprus, if that income exceeds the tax free threshold of EUR19.500.

Tax rates

What are the current income tax rates for residents and non-residents in Cyprus?

Residents

Income tax table for 2016

Taxable income bracket  Cumulative tax Tax rate on income in bracket
From EUR To EUR EUR Percent
0 19,500 0 0
19,501 28000 1700 20
28,001 36,300 3,775 25
36,301 60,000 10,885 30
60,001 No limit - 35

Non-residents

Above tax rates also apply to non–tax residents.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Cyprus?

The Cyprus income tax law defines the term “resident in Cyprus” when applied to an individual, meaning an individual who stays in Cyprus for a period or periods exceeding in aggregate 183 days in the year of assessment (1 January-31 December). A “non-resident or resident outside Cyprus” will be construed accordingly.

The Special Contribution for Defense (SDC) law, defines the term “resident in Cyprus” when applied to an individual, meaning an individual who is a Cyprus tax resident (as defined in the Income tax law - see paragraph above) and also is domiciled in Cyprus (as defined in the SDC Law). Therefore, if an individual is a Cyprus tax resident for income tax purposes but is not domiciled in Cyprus, s/he will not be considered as a Cyprus tax resident for Special Defense Contribution purposes. 

Is there, a deminimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

There is no such restriction under Cyprus laws and the Cyprus tax residency is determined solely based on the above described 183 day rule.

What if the assignee enters the country before their assignment begins?

The days determining residency start as soon as the assignee enters the country. Tax residency is determined solely based on the above described 183 day rule.

Termination of residence

Are there any tax compliance requirements when leaving Cyprus?

Before leaving Cyprus, a tax clearance certificate must be obtained from the Tax Authorities. In order to receive a tax clearance, all tax obligations must be settled.

What if the assignee comes back for a trip after residency has terminated?

The individual is recognized as a Cyprus tax resident, if his/her stay in Cyprus exceeds 183 days in a calendar year. Thus, if the assignee comes back for a trip and his/her overall stay in Cyprus in a calendar year does not exceed 183 days, she/he will not be regarded as a Cyprus tax resident and will only be liable to taxation on income sourced in Cyprus as a non-tax resident, which is in excess of EUR19,500.

Communication between immigration and taxation authorities

Do the immigration authorities in Cyprus provide information to the local taxation authorities regarding when a person enters or leaves Cyprus?

Not directly.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

Yes, if she/he spends in Cyprus more than 183 days in a calendar year. Otherwise, only if she/he has income sourced in Cyprus as a non-tax resident, which is in excess of EUR19,500.

Economic employer approach1

Do the taxation authorities in Cyprus adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Cyprus considering the adoption of this interpretation of economic employer in the future?

No, the taxation authorities in Cyprus do not adopt the economic employer approach to interpreting Article 15. There are no current plans to adopt it.

De minimus number of days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the deminimus number of days?

Not applicable.

Types of taxable compensation

What categories are subject to income tax in general situations?

The following categories of income are subject to income tax:

  • income from any trade vocation or business
  • employment: including any other allowance granted in respect of employment (whether in money or otherwise)
  • pensions and annuities 
  • rents, royalties, remuneration or other profits arising from property, including the value of the benefit, not exceeding the cost, derived by the owner of the land from the erection thereon at the expense of the tenant of any structure or improvement to any structure or building that shall become the property of the owner upon the termination of the tenancy
  • patents: any sums received on the sale of patents or patent rights, and royalties or other income received in respect of such patents
  • income derived by professional persons in Cyprus that are not resident in Cyprus, such as public entertainers, theatrical or musical or other groups of public entertainers, including football clubs and other athletic missions from abroad, are subject to tax with respect to their gross income sourced in Cyprus at the rate of 10 percent. 

Tax-exempt income

Are there any areas of income that are exempt from taxation in Cyprus? If so, please provide a general definition of these areas. 

The categories of income, which are exempt from tax, include:

  • retirement and death gratuities 
  • commutation of pension 
  • scholarship income 
  • any religious, charitable or educational institution of public character
  • provident funds payments
  • profit from the sale of securities.

Certain employer provided housing allowances (employer’s contribution to rent)

Fully taxable.

Certain employer provided housing allowances (cost of utilities)

Fully taxable.

Living away from home allowance (LAFHA)

Fully taxable.

Certain employer provided tax reimbursements

Fully taxable.

Certain employer provided relocation reimbursements

Fully taxable.

Home leave

Fully taxable.

Certain employer provided education costs

Fully taxable.

Certain bonus payments

Fully taxable.

Certain interest subsidies

No tax charge arises in respect of below market rate or interest free loans from an employer.

 

Certain auto allowances

Fully taxable.

Health insurance

Medical or health insurance up to 1 percent of gross income of an employee is not taxable. Any excess amount is fully taxable.

Expatriate concessions

Are there any concessions made for expatriates in Cyprus? 

The lower of 20% or EUR8.550 of the emoluments from any employment, which is exercised in Cyprus by an individual who was not resident of Cyprus before taking up employment in Cyprus is exempted from tax and applies from the 1st January from the year following the year of commencement of such employment.

This exemption applies until year 2020 with regard to employment that commenced from 2012 onwards for a maximum period of five (5) years.

50% of the gross emoluments are allowed to be deducted from taxable income for individuals that were not a tax resident of Cyprus prior to the commencement of their employment in Cyprus. 

This deduction applies when income exceeds €100,000 p.a. and is allowed for a period of ten (10) years, commencing from the date of employment. 

This exemption is not available to individuals that were Cyprus tax residents for a period of 3 out of 5 years preceding the year of employment but after the entry into force of this law (i.e. 01/01/2015).

An individual will not be entitled to both exemptions simultaneously.

Salary earned from working abroad

Is salary earned from working abroad taxed in Cyprus? If so, how?

Tax residents are taxed on their worldwide income. 

A foreign tax credit is available up to the level of tax that would have been imposed in Cyprus on the same source of income. Where an expatriate is from a non-treaty country, Cyprus will allow unilateral relief for foreign taxes payable, up to a maximum of the Cyprus tax payable on the same source of income. 

The remuneration from rendering outside of Cyprus salaried services for a total aggregate period in the year of assessment of more than 90 days to an employer not resident in Cyprus or to a permanent establishment outside Cyprus of an employer resident in Cyprus is exempt from tax.

Foreign pensions in respect of services rendered outside of Cyprus are tax free in respect of the first EUR3,420 and, thereafter, are taxed at a flat rate of 5 percent. However, the taxpayer may opt to be taxed in the normal way where the special mode of taxing his income results in a higher tax liability.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Cyprus? If so, how?

Income from the sale of capital assets, or stocks and shares or options thereon is not taxable.

Capital gains tax is imposed only on any gains (after adjusting for inflation) that arise from the disposal of immovable property situated in Cyprus. These gains are not included in ordinary income but are taxed separately at a flat rate of 20 percent. Gains from immovable property held outside of Cyprus are not liable to capital gains tax.

A full exemption from Capital Gains Tax is granted on any capital gains derived from the sale of immovable property, which is acquired from 16/07/2015 until 31/12/2016.

Capital losses

Capital losses cannot be set-off against taxable income. 

Capital losses arising from the disposal of immovable property situated in Cyprus are set off against chargeable gains made on the same date. If there are no gains on the same date or if the gains are not enough to absorb the capital losses, any unrelieved loss is carried forward and is set off against a chargeable gain or gains made from a future disposal until the loss is relieved. 

No loss, however, may be allowed to be carried back and set off against a gain of a previous disposal. 

Losses arising from the disposal of exempt assets (i.e. securities) are not allowable.

Exceptions

Lifetime exemptions are available to individuals for capital gains up to EUR17,086 or, in the case of agricultural land owned by a farmer, up to EUR25,629. Gains on the disposal of a dwelling house are exempt up to EUR85,430 if the owner resides in it continuously for at least five years before the disposal. These exemptions are not available separately. Therefore, an individual claiming a combination of these, is only entitled to a maximum exemption of EUR85,430.

Dividends, interest, rental income

Dividends and interest are exempt from income tax but are subject to the Special Defence Contribution tax at a rate of 17 percent and 30 percent respectively.

In case of Cyprus sourced dividends and interest, the tax is withheld at source. Special Defence Contribution tax on foreign sourced dividends and interest must be paid on a self-assessment basis by the individual taxpayer by then end of the six onths edning 30/6 and 31/12 of each year at the latest.

Rental income received by a Cyprus resident is taxable under both the income tax and the Special Defence Contribution tax as follows.

Income tax

The net taxable rental income (after deducting 20 percent from gross rental income but before deducting any wear and tear allowances and expenditure for interest) is included in the taxable income and taxed at the appropriate income tax rate.

Special Defense Contribution tax

Under the Special Defence Contribution tax, an amount of 25 percent is deducted from the gross amount of rental income. After this deduction, the taxable amount of rental income is subject to Special Defence Contribution tax at a rate of 3 percent.

It should be noted that as from 16/07/2015 an amendment to the Special Contribution for Defence (SCD) law has been enforced. Based on the new provisions of the SDC law any dividends, interest and rents received by individuals who are Cyprus tax residents but are not domiciled in Cyprus (as defined in the SCD Law), irrespective of the origin of the relevant income (i.e. from sources within Cyprus or abroad), are exempt from taxation.

Gains from stock option exercises

Residency status          Taxable at:    
  Grant         Vest          Exercise    
Resident N N Y*
Non-resident N N Y/N
Other (if applicable) N/A N/A N/A

* Only on difference between sale price less cost to acquire.

Personal use items

Gains realized from the disposal of personal use items (such as works of art, jewelry, coins, stamps, antiques etc.) are not subject to Cyprus personal income tax. Consequently, any losses incurred from such a disposal are not tax deductible.

Gifts

Gifts are not taxable. 

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Cyprus? If so, please discuss?

No additional issues other than those covered above.

Are there capital gains tax exceptions in cyprus? If so, please discuss?

No additional issues other than those covered above.

General deductions from income

What are the general deductions from income allowed in Cyprus?

Deductions from income

Generally all outgoings and expenses wholly and exclusively incurred in the production of income are deductible for tax purposes. Specifically, however, the following deductions are allowed:

  • Professional subscriptions 
  • Trade union subscriptions 
  • Charitable donations and contributions 
  • Special contribution.

Personal allowances

  • Life insurance premium relief on policies insuring the individual's life: Premiums allowed are restricted to 7 percent of the capital sum insured. Premiums and contributions must not exceed 1/6th of taxable income. Where a policy issued is cancelled at any time within the first six years, part of the premiums already allowed as tax deductions are treated as income of the policyholder in the year of cancellation. If the cancellation is made at any time within three years from the date of such policy, 30 percent of the premiums for which a deduction had been allowed is added to income and 20 percent of such premiums if the cancellation is within the fourth, fifth and sixth year from the date of the insurance policy. 
  • Contributions to the social insurance fund or other approved pension, provident or other funds: EU nationals may deduct their contributions to equivalent funds in their home country provided that they are approved for tax purposes there. Foreign nationals may deduct their contributions after securing the consent of the Commissioner of Taxation.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Cyprus?

Current year gross-up is the normal method used.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Cyprus? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), etc.

Pay-as-you-earn (PAYE)

Tax on employment income must be withheld by the employer, under the PAYE system and remitted to the Tax Authorities monthly. This tax is credited towards the employee’s final tax liability. The employer has the obligation to submit annually tax form (IR7) entitled “Employer’s Return of Employees”. This return should be filed by the employer not later than 31 July of the year following the year of assessment, via the Taxisnet system.

  • Each employer is required to apply the PAYE regulations and make PAYE deductions of tax by reference to the Claim of Allowances form (IR 59) completed by each employee at the beginning of each year. 
  • The estimated tax for the year is divided by 12 (for monthly paid employees) or by 52 (for weekly paid employees). 
  • The monthly or weekly PAYE is withheld from each employee’s emoluments. 
  • The base for PAYE deductions is form IR 59 which is handed over by the employee to the employer at the beginning of each year. It includes the salary together with benefits-in-kind. An employee must also declare other income such as rental income. 
  • Allowances/deductions must also be declared by the employees. 
  • The employer calculates the PAYE deduction based on the IR 59 and withholds monthly the respective tax from each employee’s emoluments. 
  • Totals of deductions for one month are remitted by the end of the following month to the District Tax Collection Office, using form IR 61.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Cyprus? For example, a foreign tax credit (FTC) system, double taxation treaties, etc.?

Yes, relief for foreign taxes suffered is available through a network of Double Tax Treaties up to the level of tax that would have been imposed in Cyprus. 

Where an expatriate is from a non-treaty country, Cyprus will allow unilateral relief for foreign taxes payable, up to a maximum of the Cyprus tax payable on the same source of income.

General tax credits

What are the general tax credits that may be claimed in your country? Please list below.

When the final tax liability is computed, credit is given for taxes withheld at source and for interim tax payments.

Sample tax calculation

This calculation assumes a married taxpayer coming to Cyprus with two children whose three-year assignment begins 1 January 2016 and ends 31 December 2018. The taxpayer is entitled to an annual base salary of USD100,000, an annual bonus, cash allowances and various benefits in kind which are listed below. The calculation covers three years.

 

2016

USD

2017

USD

2018

USD

Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: EUR 1= US$ 1.0887.

Other assumptions

  • All earned income is attributable to local sources. 
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year. 
  • Interest income is not remitted to Cyprus. 
  • The company car is used for business and private purposes and originally cost USD50,000. 
  • The employee is deemed resident throughout the assignment. 
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Year ended

2016

EUR

2017

EUR

2018

EUR

Days in Cyprus during year 345 330 320
Earned income subject to income tax:      
Salary 91.853 91.853
91.853
Bonus 18.371
18.371
18.371
Cost-of-living allowance 9.185 9.185
9.185
Housing Allowance 11.022
11.022
11.022
Company car 5.511
5.511
5.511
Moving expense reimbursement 18.371
0 18.371
Home leave 0 4.593 0
Education allowance 2.756
2.756
2.756
Total earned income 157.068
143.290
157.068
Interest income* 0 0 0
Total income subject to income tax 157.068
143.290 157.068
       
Deductions      
50% Exemption** 78.534
71.645
78.534
Special contributions*** 2.344
0 0
Social Insurance contributions**** 4.243 4.243 4.243
Total taxable income 71.947
67.402
74.291

Calculation of tax liability

 

2016

EUR

2017

EUR

2018

EUR

Taxable income as above 71.947
67.402
74.291
Cyprus tax thereon 15.067
13.476
115.887
Less:      
Tax rebates (dependent spouse) 0 0 0
Foreign tax credits 0 0 0
Total Cyprus tax 15.067
13.476
15.887

* Interest income is exempt from income tax but the gross amount is subject to Special Defence Contribution at a rate of 30 percent with tax credit available for any foreign withholding tax suffered. Based on the new provisions of the SDC law any interest income received by individuals who are Cyprus tax residents but are not domiciled in Cyprus irrespective of the origin of the relevant income (i.e. from sources within Cyprus or abroad) are exempt from taxation.

** 50% of the gross emoluments are allowed to be deducted from taxable income for individuals that were not a tax resident of Cyprus prior to the commencement of their employment in Cyprus. 

This deduction applies when income exceeds €100,000 p.a. and is allowed for a period of ten (10) years, commencing from the date of employment.  

*** Please see section “Special Contribution tax” for more information regarding Special Contribution in Cyprus.

**** Social insurance contributions assuming that the expatriate is subject to Social Insurance in Cyprus (maximum yearly insurable earnings – EUR54,396 x 7.8 percent).

Footnotes

1Certain tax authorities adopt an “economic employer” approach to interpreting Article of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the “economic employer” and therefore the employer for the purposes of interpreting Article 15. In case, article 15 relief would be denied and the employee would be subject to tax in the host country. 

2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the economic employer approach.

© 2016 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG's new digital platform