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Cyprus Tax – Income Tax

 

CYPRUS INCOME TAX

Personal tax rates

Taxable income

Tax

Tax

Accumulated

From

              To

Rate

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 above

35

   

Cyprus Income tax rates

Companies (up to year 2012)

Companies (from year 2013)

10 %  

12,5 %

Tax resident

Individuals:

Present in the Republic of Cyprus for more than 183 days in a tax year.Cyprus tax resident definition for the purpose of special defense contribution has changed. (See note in special defence contribution section)

Cyprus Companies:

Management and control is exercised in the Republic of Cyprus.

Exemptions   Exemption limit
Applicable to individuals only    
• Interest   Entire amount
• Specified lump sum received as retiring gratuity, commutation  of pension or compensation for death or injury   Entire amount
• Remuneration from salaried services supplied outside Cyprus to a non resident employer or to a permanent establishment abroad owned by a Cyprus resident employer for more than 90 days in a tax year   Entire amount
• Remuneration from any office or employment exercised in Cyprus by an individual whose residence was outside Cyprus before the commencement of the employment. The exception is applicable for a period of five years from the 1st of January following the year of commencement of the employment with last eligible year being 2020.   20% of Income or €8.550 whichever is the lower
• Income from employment that exceeds €100.000 annually by any individual whose residence was outside Cyprus before the commencement of the employment. The exception is applicable for the first 10 years of Employment. The exemption is allowable if certain conditions are met.   50%
Applicable to Cyprus companies only    
• Interest (does not apply for interest income arising in the ordinary course of business which is fully taxable as trading income)   Entire Amount
Applicable to both individuals and companies• Dividends• Gains from the disposal of securities• Profits from a permanent establishment abroad (Under certain conditions)• Gains derived from foreign exchange differences, with the exception of foreign exchange differences arising from trading in foreign currencies and related derivatives.   Entire amount
Deductions   Deduction limit

Applicable to companies only

Expenditure incurred for the acquisition of shares in an innovative business

Interest expense incurred for the direct or indirect acquisition of 100% of the share capital of a subsidiary company will be treated as deductible for income tax purposes provided that the subsidiary company does not own, direct or indirect, any assets that aren’t used in the business. If the subsidiary owns, direct or indirect, assets not used in the business, the interest expense deduction is restricted to the amount which relates to assets used in the business. It applies for acquisitions of subsidiaries from 1st January 2012

Profits from the exploitation and disposal of intellectual property rights. In case of loss, can be carried forward up to 20%. Based on the action against the BEPS, as from the 1 July 2016, it requires a clear link between the rights that generate income and the activities that contribute to such income

Notional Interest Deduction-(NID). Notional Interest Deduction is allowable when new equity introduced to a Cyprus company after 1 January 2015 in the form of share capital or share premium. Notional Interest Deduction is calculated on the new capital using the rate of 10 year government bond yield (of the year preceding the tax year) of the country in which the new capital is invested increased by 3%(the minimum amount of the deduction is restricted at the rate of the 10 year Cyprus government bond increased by 3%)

 

 

Entire amount

 

 

Entire amount

 

 

 

 

80%

 

 

 

The Notional Interest Deduction is restricted to 80% of the taxable income, as calculated, before the deduction of Notional Interest Deduction

Applicable to individuals only

•Expenditure incurred for the acquisition of shares in an innovative business until 31/12/2016

 

 

Entire amount 

•As from 1 January 2017-amounts invested each tax year in approved innovative small and medium size enterprise, directly or indirectly are deducted from taxable income

•Expenses relating to rental income

 

 Up to 50% of the taxable income prior to this deduction (subject to a maximum of €150.000 per year)

20% of rental income

Applicable to both individuals and companies    
• Donations made to approved charities with receipts   Entire amount
• Contributions to trade unions or professional bodies   Entire amount
• Special contribution ( (Terminated from 1/1/2017) )   Not applicable
• Maintenance expenses of a conservation building   Entire amount. Up to €700, €1100 or €1200 per square meter (according to the size of the building).
Personal allowances   Allowance
• Life insurance premiums in respect of the life of the claimer   Premiums are restricted to 7% of the insured capital sum. Premiums and contributions must not exceed 1/6 of the taxable income before any personal allowance.
• Life insurance premiums in respect of the life of the  claimers’ spouse which were in existence up to the 31.12.2002 where personal allowance was given, will continue to be deductible from the claimer• Contributions for social insurance, provident, medical or other approved funds.If a life insurance is cancelled or redeemed within 6 years from the start of the insurance, the previously paid and granted premiums as personal allowance will be taxable under the following rates: Cancellation within 3 years 30%, Cancellation between 4 and 6 years 20%.    

Other important provisions:

Registration with the Cyprus Tax authorities:

Cyprus Companies incorporated or registered or become tax residents of Cyprus are obliged to  register with the Cyprus tax authorities and obtain their Cyprus Tax Identification Code within 60   days from that date. Also are obliged to inform the Cyprus tax authorities for any amendment on their records within 60 days from that amendment.

Lifting the Cyprus Bank Secrecy:

The Cyprus tax authorities has the power to submit a written application to Cyprus Bank

Institutions asking for the lifting of Cyprus Bank Secrecy, for an active or closed account of a person registered to Cyprus Income Tax Office for a period of seven years preceding the application by having necessarily the written consent of the Attorney General.

Application for taxpayers’ information by civil servants:

The Cyprus tax authorities may ask for information, for the purpose of imposing tax, from other governmental departments and specifically by local authorities, semi- governmental authorities excluding the Central Bank of Cyprus and the Department of Supervision and   Development of Cooperative Companies.

Accounting books and records:

Businesses accounting books and records should be updated by the end of the fourth month from the date of each transaction. Furthermore, invoices should be issued within thirty days from the date of the transaction unless a business obtained the written approval of the Commissioner for a longer period.

Imposition of surcharges:

Late submission of declarations or supporting documents requested by The Cyprus Inland Revenue Office will result in surcharges of €100 or €200 depending on the circumstances.

Tax imposed on profits arising from bets of OPAP and National Lottery

A new law is imposed for 20% taxation on profits in OPAP betting’s and profits of all National Lottery stakes that exceed €5.000.

• Widow pension

Taxpayer can elect, on annual basis, to be taxed either at the normal tax rates and bands or the widow pension to be taxed separately from any other income at the flat rate of 20% on amount over € 19.500.

• Loan restructuring

With the aim to give motives for loan restructuring, tax incentives have been provided, in those cases that such a restructuring include transfer of immovable property to the lender against the loan obligation. (Subject to conditions). The disposal should take place within 2 years from the date that the amendment of the law is applicable (31 December 2015).

If a part of the sale proceeds, will return to the borrower, then this amount is subject to IT, CGT and SDC, which must be withheld and paid to the authorities by the loan provider. The cost of acquisition is the amount had been agreed for the purpose of restructuring.

Also it is not payable any transfer fees and stamp duties.

Tax ruling: apply from 16/5/2016

Charge €1000 – without acceleration

Charge €1000 – with acceleration 

Special Contribution – terminated from 1/1/2017

Special Contribution of private sector employees, self-employed individuals and private sector pensioners along with government and semi-government employees and pensioners of public sector.

 

Last update: April 2017

 

PKF / ATCO Limited is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. This publication is for information purposes only and should not be considered as professional advice.