Basis of taxation
All Cyprus tax resident individuals are taxed on all chargeable income accrued or derived from all sources in Cyprus and abroad.
Individuals who are not tax residents of Cyprus are taxed on certain income accrued or derived from sources in Cyprus
An individual is tax resident in Cyprus if (s) he spends in Cyprus more than 183 days in any one calendar year.
With effect as from 1 January 2017, an individual may also be considered tax resident in Cyprus if (s) he satisfies the “60 day rule”. The “60 day rule” applies to individuals who in the relevant tax year:
- do not reside in any other single state for a period exceeding 183 days in aggregate, and
- are not considered tax resident by any other state, and
- reside in Cyprus for at least 60 days, and
- have other defined Cyprus ties. To satisfy this condition the individual must carry out any business in Cyprus and/or be employed in Cyprus and/or hold an office (director) of a company tax resident in Cyprus at any time in the tax year, provided that such is not terminated during the tax year. Further the individual must maintain in the tax year a permanent residential property in Cyprus which is either owned or rented by him/her.
For the purposes of both the “183 days rule” and the “60 days rule” days in and out of Cyprus are calculated as follows:
- the day of departure from Cyprus counts as a day of residence outside Cyprus
- the day of arrival in Cyprus counts a as day of residence in Cyprus arrival and departure from Cyprus in the same day counts as one day of residence in Cyprus
- departure and arrival in the same day counts as one day of residence outside Cyprus
The following income tax rates apply to individuals:
|CHARGEABLE INCOME||TAX RATE||TAX||ACCUMULATED TAX|
|60.001 and above||35|
Foreign pension income is taxed at the flat rate of 5% on amounts over €3,420. The taxpayer can however on an annual basis elect to be taxed at the normal tax rates and bands set out above.
Cyprus widow (er)’s pension is taxed at the flat rate of 20% on amounts over €19,500. The taxpayer can however on an annual basis elect to be taxed at the normal tax rates and bands set out above.
Benefits in kind
The taxation of benefits is provided in Article 5 of the Income Tax Law, according to which benefits from any office or employment, provided to an employee or to a member of his family either in cash or otherwise, are subject to tax.
What is a benefit in kind?
“Benefit in kind” means the benefit that is, or is deemed to be, granted in connection with any employment or the holding of an office.
Scope of application:
The rules apply with reference to benefits in kind provided to:
- Employees, and
- Persons who hold or are deemed to hold an office.
When the benefit is granted to a member of the family or household of the person who is employed or holds the office, then the benefit shall be deemed to be provided to that person.
The value of benefits in kind is taxed in the same way as the gross earnings, through the submission of the Form T.D. 7. Employers are required to declare the benefits in kind provided by them or by their connected companies.
Categories of Benefits in Kind
- Benefits in kind in relation to cars
Benefits in kind that relate to cars can be classified into three types:
- a) Private Use of company salon cars
- b) Private Use of company Commercial Cars (Van type)
- c) Direct cash payments for car use
- Accommodation and use of assets
The provision of assets (e.g. accommodation, furniture, boats, machinery, etc.) to the employee when they belong to the employer and/or leased and/or rented by the employer, can be considered as benefits in kind.
- Other benefits in kind
Any other benefit in kind that does not fall within the above categories, is considered to fall into this category and includes:
- Provision of assets at subsidized prices,
- Repayment of personal expenses (benefits, fees, etc.),
- Free supply of goods or the sale of goods and services with discounts such as travel, entertainment, meals, domestic services, professional advice, transport etc.
The determination of the value of the benefits in kind which are defined as a supply of goods or a provision of services, is usually determined as the difference between the normal selling price less discounts provided to the general public less the price paid by the employee.
As a general principle, exemptions apply only to the extent where the payment or reimbursement to the employee is made against actual costs supported by payment receipts. They don’t apply where the relevant benefit in kind takes the form of cash.
Other specific exemptions mentioned in the guide include amongst others:
- Computer equipment
- Telephone services
- Childcare facilities
- Goods consumed in the workspace
- Awards for long-term service
- Christmas parties and events
- Subscriptions to professional bodies
- Training Courses/scholarships to employees
- Uniforms and specialized attire
- Recreation areas
- Relocation expenses
The following income is exempt from income tax:
- Dividends received are exempt from income tax and instead are taxable under special contribution for defense.
- Interest, except for interest arising from the ordinary business activities. Passive interest (interest not arising from the ordinary business activities) is taxable under special contribution for defense.
- Profits from the disposal of shares and other securities
- 50% of the remuneration from any employment exercised in Cyprus by an individual who was not resident in Cyprus before the commencement of the employment, provided that the annual remuneration exceeds €100,000. For employment commencing as from 1st January 2015, the exemption does not apply, in case the said individual was a Cyprus tax resident for 3 or more tax years out of the last 5 tax years, immediately prior to the tax year of commencement of the employment nor in the preceding tax year.
- 20% of the remuneration exercised in Cyprus, but maximum limited to €8,550 per year, by an individual who was not resident of Cyprus before the commencement of the employment. For employments commencing during or after 2012 the exemption applies for a period of 5 years starting from the tax year of commencement of the employment with the last eligible tax year being 2020. This exemption may not be claimed in addition to the 50% exemption mentioned above.
- All Remuneration from salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus resident employer or to a foreign permanent establishment of a Cyprus resident employer.
- Lump sum received by way of retiring gratuity, commutation of pension or compensation for death or injuries.
- Capital sums accruing to individuals from any payments of approved funds (e.g. provident funds)
The following are deducted from income:
- Contributions to trade unions or professional bodies (the whole amount)
- Loss of current year and losses of the previous five years can be carried forward and set off against future profits
- 20% of Gross Rental Income
- Donations to approved charities (supported by receipts), (the whole amount)
- Expenditure for the maintenance of a building under Preservation Order (up to €1.200, €1.100 or €700 per square meter (depending on the size of the building)
- Contributions to Social Insurance, Medical Funds (maximum 1,5% of remuneration), Life insurance premiums (maximum 7% of the insured amount) and Provident Fund contributions (maximum 10% of remuneration)- up to 1/6 of the chargeable income
- Up to 50% of taxable income for investments in approved innovative small and medium sized enterprises either directly or indirectly up to a maximum of €150,000 per year.
- Contributions to Social insurance, national health system medical fund, pension and provident funds, life insurance premiums