Thinking beyond borders
Extended business travelers are liable for Cyprus taxation on employment income relating to their workdays in Cyprus in the instance that the income exceeds the tax free threshold.
A person’s liability for Cyprus tax is determined by their residence status. A person can be a resident or non-resident for Cyprus tax purposes. The Cyprus 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. There is no demininius number of days rule in respect of residency start and end dates under Cyprus laws and the Cyprus tax residency is determined solely based on the above described 183 day rule.
The general rule is that a person who is a tax resident of Cyprus is assessable on worldwide income. Non-tax residents are generally assessable on income accruing or arising from sources within Cyprus (i.e. income from employment exercised in Cyprus). Extended business travelers are likely to be considered non-tax residents of Cyprus for tax purposes unless they enter Cyprus with the intention to remain in Cyprus for more than 183 days in a calendar year.
Furthermore, the definition of a Cyprus tax resident has been amended to also provide that, an individual who does not stay in any other country, for one or more periods exceeding in aggregate 183 days in the same tax year and is not tax resident in any other country for the same year, is deemed as a resident in the Republic in that tax year, if all of the following conditions are met:
The law is further amended to clarify that an individual that cumulatively meets
all the above conditions shall not be treated as a Cyprus tax resident in the
tax year if, during that year the exercise of any kind of business in the Republic and/or employment in the Republic and/or holding of an office with a
tax resident person in the Republic is terminated.
Technically, there is no threshold/minimum number of days that exempts a person from the requirement to file tax returns and pay tax in Cyprus. To the extent the individual qualifies for relief in terms of the employment income article of an applicable double tax treaty, there will be no tax liability. The treaty exemption will not apply if a Cyprus entity is viewed as the individual’s employer. The economic employer approach is not adapted or legislated in Cyprus.
All earnings, whether paid in cash or in the form of a benefit-in-kind (e.g. rental benefit, private use of a motor vehicle, private use of a mobile phone, school fees etc.), made by an employer to an employee are taxable unless specifically exempted. Further, pensions, annuities, rents, etc. are also taxable in Cyprus.
The first 19,500 euros (EUR) in annual earnings is tax exempt. Income above this amount is subject to progressive tax rates ranging from 20 percent to 35 percent. These rates are applicable to both residents and non residents.
Contributions to the Cyprus Social Insurance Fund are mandatory and cover any person that is gainfully occupied in Cyprus, either as an employed or as a self-employed person.
Most extended business travelers from within the EU would not be liable for Cyprus social security as they are eligible to remain in their home country’s social security system under the EU social security regulations.
Employees coming from countries outside the EU (third country nationals) are generally fully subject to social security payments in Cyprus.
Tax returns that are filed in a paper format are due by 30 April following the tax year-end, which is 31 December. The deadline for submission of the personal income tax returns can be extended to 31 July, if the tax returns are submitted in an electronic format via the Taxisnet System.
Tax on employment income must be withheld by the employer, under the Pay-As-You-Earn (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 no later than 31 July of the year following the year of assessment, electronically via the Taxisnet System.
A visitor’s entry visa does not entitle you to work in Cyprus. A business visitor will be entitled to conduct normal business negotiations within a specified time. Persons wishing to enter Cyprus for employment or business should normally be in the possession of entry permits prior to their arrival in Cyprus. Employees from outside the EU/EEA wishing to live or work in Cyprus must apply for a work and residence permit. Citizens from EU Member States may apply for a registration certificate after their arrival in Cyprus. Individuals from the EU do not need to apply for a work permit, but they do need to register with the Cyprus migration authorities by obtaining an MEU1 certificate.
In addition to the Cyprus domestic tax legislation that provides unilateral relief from international double taxation, Cyprus has entered into double taxation treaties with more than 60 countries to prevent double taxation, and allow cooperation between Cyprus and overseas tax authorities in enforcing their respective tax laws.
There is the potential that a permanent establishment (PE) could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has, which needs to be decided on a case-by-case basis.
Since 13 January, 2014 , the standard Value Added Tax (VAT) rate in Cyprus is 19 percent. A reduced VAT rate of 5 percent applies to various products and services such as food items, entry fees to theaters, cinemas and other similar cultural events. A reduced VAT rate of 9 percent, among others applies to various pharmaceutical products, hotel accommodation and public and private transport.
New rules for intra group back-to-back financing arrangements were introduced in Cyprus through a Circular issued by the Cyprus Tax Department (CTD) with effect as from 1 July 2017. In accordance with the new rules introduced, the arm’s length principle must be applied in all intra group back-to-back financing arrangements in accordance with the OECD Transfer Pricing Guidelines. An appropriate transfer pricing analysis must be carried out in order to delineate the intra group back-to-back financing arrangements and to determine the applicable arm’s length remuneration.
Under certain conditions, entities carrying out a purely intermediary activity may opt for a Simplification Measure (resulting to a minimum return of 2% after tax on assets).
A transfer pricing analysis should be:
(i) Prepared by a Transfer Pricing expert;
(ii) Submitted to the CTD by a person who has a license to act as an auditor of a company according to the Cyprus Company Law and is required to carry an assurance control confirming the quality of the transfer pricing analysis;
The new rules apply for all existing and future transactions, irrespective of the date of entering into the relevant transactions. Tax rulings issued prior to 1 July 2017 will no longer be valid.
Cyprus has data privacy laws. Organizations have a legal duty to keep data private and secure.
Cyprus does not restrict the flow of currency in and out of the country. However, certain reporting obligations are imposed to control tax evasion and money laundering. An individual requiring a bank account in Cyprus may only do so with proof of identity.
Non-deductible costs for assignees include for example relocation expenses, children’s school fees, commuting to and from work, and all other costs considered as being of a private nature.