Taxes in Cyprus

Cyprus is one of the most popular European countries for registration of residence of legal entities because of its flexible tax system, existing benefits for business and loyal conditions for immigration of foreign investors. Due to the fiscal advantages, the capital of many international corporations is concentrated on the island, which confirms the high rating of confidence in this jurisdiction.

How profits are taxed in Cyprus

The need to pay current rates on the income of a company on the island is determined by the criteria of tax residency. If the firm is officially registered in the state and / or on the territory of the country is located its main office, from where the rest of the assets are managed, the profits are taxable.

Also, the residency of a legal entity may be determined by the status of shareholders or the presence of a permanent establishment. For example, if the members of the board of directors are Cypriots or reside on the island with a residence permit and hold their meetings here, the company must pay tax on the income received, according to local law.

The corporate rate in Cyprus is 12.5% on net profit and is one of the lowest in the European region. This determines the demand for the jurisdiction among foreign enterprises in order to optimize costs and reduce the tax burden. The legislation of Cyprus establishes exceptions that do not fall under the corporate rate.

Thus, income tax is not required to be paid on:

• sales of securities;
• profits from outside the island (under certain conditions);
• dividends received in foreign countries.

The state also has a defense tax on interest for companies that are residents of the country. From January 1, 2024, it amounts to 17%.

Taxes for individuals

For residents of Cyprus, who stay in the country for more than 183 days a year, there is a progressive income tax scale. The more a person earned during the reporting period, the more will have to transfer to the state budget. The scale takes into account the income for the calendar year and contains several steps:

• annual profit did not exceed 19.5 thousand EUR – personal income tax exemption applies;
• income for 12 months amounted from 19.5 to 28 thousand EUR 20% tax is applied;
• profit for the last year is from 28 to 36.3 thousand EUR;
• personal income tax is equal to 20%;
• earned income of 36.3-60 thousand EUR for a year is subject to 30% tax;
• annual income exceeding 60 thousand EUR – personal income tax rate of 35 % applies.

Cypriot legislation provides for several categories of income that do not count towards personal income tax. For example, the sale of securities, pensions, severance payments and insurance payments are not included in the total annual income of individuals for this type of tax. Also, funds that have been donated to charity are not taxed at the progressive rate.

Capital gains tax

The state has introduced tax on difference in value on sale of immovable property. The original price of the apartment/house/premises and the amount received on sale are taken into account. The gain realized by the seller is taxed at 20%. When charging this duty, a number of exemptions and exclusions apply (sale due to a change of primary residence, inflation, transfer by inheritance and other circumstances).

In 2017, the law on the exchange of real estate tax came into effect. Previously, all owners of flats, houses and apartments were obliged to pay property tax annually. The abolition of this fee is associated with the need to attract foreign investment in the state, as well as to stimulate the growth of new housing construction on the island.

Buyers of real estate in Cyprus can also take advantage of an additional benefit and obtain citizenship of the state in a simplified procedure. For this purpose, it is necessary to invest in the development of the island or infrastructure projects from 5 million EUR. Altindustry lawyers are aware of the latest amendments to the legislation of Cyprus and will be able to organize the work of business in this legal field with minimal tax burden.

Value added tax

Cyprus has a generally accepted VAT rate of 19% on most goods and services. However, there are reduced taxation conditions and exceptions. For example, there is a 0% VAT rate for sea and air transportation, as well as services for their emergency maintenance. A reduced rate of VAT applies to the services of composers, writers, artists and specialists of other creative professions. Supplies of fertilizers, non-bottled water, animal feed, newspapers and magazines are subject to 5% VAT.