This article is not intended to dive into detail about the Cyprus tax system. We will only briefly list the tax obligations of individuals. We will write about the most popular topics.
- What taxes does a Cypriot citizen or Cypriot tax resident need to pay?
- What amendments in the tax system have been made recently?
- How is road tax calculated, and when must it be paid?
- How to avoid fines and penalties for lack of vehicle inspections?
TAX RESIDENT STATUS
A tax resident of Cyprus is a person who has resided in Cyprus for more than 183 days in one calendar year.
In Cyprus, a person can already declare himself as a tax resident of the country after 60 days of permanent residence. This is a voluntary choice, an opportunity to take advantage of the so-called “60-day rule”. It can be applied if:
- The applicant has not been in any other country for more than 183 in a year (to be counted in the aggregate in a calendar year)
- Has not declared themself as tax residents in any other country.
- Stayed in Cyprus for at least 60 days
- Has any interests on the island (e.g., running a business, working, being a manager, or being a member of the Board of directors of a Cypriot company).
For the application of both the ‘183 days rule’ and the ’60 days rule’, the days spent in and out of Cyprus are calculated as follows:
- Departure from Cyprus is considered a day spent outside Cyprus.
- Arrival in Cyprus is considered a day spent in Cyprus.
PERSONAL INCOME TAX IN CYPRUS
People earning less than €19,500 do not pay income tax.
If the income is between €19,501 – €28,000, a 20% tax is payable. Income between €28,001 – €36,300 has a 25% tax. For income between €36,301 -€60,000, a 30% tax is payable, and incomes over €60,000 annually have a 35% tax.
Example: If you have earned €70,000 in a year, the amount of tax will be calculated as follows: €1,700 + €3,775 + €10,885 + €3,500 = €19,860.
You do not have to pay taxes on property, inheritance, income received from dividends, and the sale of securities. Pension benefits are also exempt from tax, but you should pay attention to the recently introduced GESY tax, which is paid on all receipts.
SOCIAL AND HEALTH INSURANCE
Social contributions are an obligation for both the employee and the employer. Personal income is subject to two key taxes: social insurance (8.3% on amounts up to €54,864) and the National Health System contribution – GESY (2.65% on amounts up to €180,000).
These taxes are 15.6% for employees and 4% of income for individual entrepreneurs (self-employed).
PROPERTY TAX IN CYPRUS
There is no property tax in Cyprus, but there is a municipal tax, the rate of which is set by each municipality. In addition, you must pay a municipal fee (from €85 to €500 per year) for garbage collection, street lighting, and other municipal services. There is also an annual sewage tax, ranging from 0.5% to 3% of the property value.
DEFENCE CONTRIBUTION IN CYPRUS
The defense contribution is payable on the following types of income of tax residents:
- Dividends,
- “Passive” interest income
- Rental income.
The following rates are applied in calculating the amount of contribution:
- dividends received from the company – 17%,
- Interests on savings certificates and government bonds – 3%,
- Other interest – 30%.
Note that rental income is taxed at 3%, but only 75% of this income is considered.
AMENDMENTS TO THE TAX LAW STARTING FROM December 31, 2022.
Two new Cypriot tax amendment provisions have recently been published. How will they affect the reporting of local and international businesses? It is important to consider whether an individual receives income from a legal entity.
Amendments to the Special Contribution for Defence Law (SCDL) and the Income Tax Law (ITL) were published in the Government Gazette in December 2021 and will enter into force from December 31, 2022. These laws have been revised following the latest EU recommendations for Cyprus and the EU guidelines. These protective tax measures are to be adopted by EU member states concerning jurisdictions blacklisted by the EU*.
AMENDMENTS IN DIVIDENDS LAW
WHT (Withholding Tax – the tax on repatriation of income) at the rate of 17% is imposed on dividends paid by a Cyprus tax-resident company to those companies which are tax residents of jurisdictions included in the EU Black List or based/registered in a jurisdiction included in that list.
This article will refer to them as “blacklisted companies.” However, it should be noted that – in the second case – the rule only works for companies that do not tax residents of some other jurisdiction not included in the EU “blacklist.”
The WHT provision does not apply to dividend payments on shares listed on a recognized stock exchange.
PROCEDURES
WHT of 30% is imposed on interest paid by a Cypriot tax resident company to blacklisted companies. The WHT provision does not apply if interest payments on securities are listed on a recognized stock exchange, or individuals make interest payments.
ROYALTY
A WHT of 10% is imposed on royalties paid by a Cypriot tax resident company to blacklisted companies. The WHT provision does not apply where individuals pay royalties.
* The “EU Blacklist” lists jurisdictions that do not exchange tax information with the European Union. The EU started its anti-offshore policy back in 2015 after the EU Directive IV was adopted. The Directive’s requirements aimed to combat states pursuing low-tax or tax-free policies that facilitate tax evasion and money laundering by business entities. The European Union’s initial blacklist was formed in December 2017, including the American Virgin Islands, American Samoa, Trinidad and Tobago, Guam, and Samoa.
In 2021, 12 jurisdictions were listed: American Samoa, Anguilla, Dominica, Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, American Virgin Islands, and Vanuatu.
