Cyprus: Income Tax - Charge Of Tax

Last Updated: 2 June 2011

Resident in Cyprus

In the case of a person who is tax resident in Cyprus tax is levied on all income accruing or arising from sources both within and outside Cyprus, in respect of:

  • Profits or other benefits from any business
  • Profits or other benefits from any office or employment
  • Dividends, interest or discount
  • Rents, royalties or other profits arising from property
  • Any amount or consideration in respect of any trade goodwill reduced by any amount incurred for the purchase of such trade goodwill.

Non-Resident in Cyprus

In the case of a person who is not tax resident in Cyprus, tax is levied on the income accruing or arising from sources in Cyprus only, in respect of:

  • Profits or other benefits from a permanent establishment situated in Cyprus
  • Profits or other benefits from any office or employment exercised in Cyprus
  • Pensions derived from past employment exercised in Cyprus
  • Rent from property situated in Cyprus
  • Any amount or consideration in respect of any trade goodwill reduced by any amount incurred for the purchase of such trade goodwill
  • The gross income derived by an individual from the exercise in Cyprus of any profession or vocation, the remuneration of public entertainers, and the gross receipts of any theatrical, musical or other group of public entertainers.

"Resident in Cyprus", when applied to an individual, means an individual who stays in Cyprus for a period or periods exceeding in aggregate 183 days in the year of assessment and, when applied to a company, means a company whose management and control is exercised in Cyprus. "Permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or party carried on, and includes a place of management, branch, office, factory, workshop, mine, oil or gas well, quarry or any other place of extraction of natural resources.

Income Tax – Exemptions

 

 

Individuals

Other persons

Lump sum payment on retirement or commutation of pension, or a gratuity on death

100%

-

Capital sums from life insurance or approved pension, or provident funds, or medical schemes

100%

-

Income from scholarship or other educational endowment

100%

-

Income of any religious, charitable or educational institution of a public character

-

100%

Income of any co-operative society in respect of transactions with its members

-

100%

Emoluments of foreign officers of an institution

exercising educational, cultural or scientific function

100%

-

Emoluments of foreign diplomatic and consular

representatives if not citizens of Cyprus

100%

-

Income of any local authority

-

100%

Income of any approved pension or provident fund or any insurance fund

-

100%

Income of any company formed exclusively for the purpose of promoting art, science or sport

-

100%

Pensions and special grants under special legislation

100%

-

Widow's pensions

100%

-

Income from interest Interest accruing to any person from the ordinary carrying on of any business, including any interest closely connected with the ordinary carrying on of the business, is not exempted but included in the calculation of profit

100%

100%

Dividends

100%

100%

Remuneration from any office or employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his employment. This exemption applies for a period of three years commencing from 1 January following the year of commencement of employment

   

Profit from the sale of securities

100%

100%

Profits from a permanent establishment situated

outside Cyprus, unless the permanent establishment directly or indirectly engages more than 50% in activities which lead to investment income and the foreign tax burden is substantially lower than the tax burden in Cyprus

100%

100%

Remuneration for the rendering outside Cyprus of 100% - salaried services for a total aggregate period in the year of assessment of more than 90 days to an employer not resident in Cyprus.

100%

-

 

Income Tax - Capital allowances

 

 

Annual wear & tear allowance %

Industrial buildings

4

Agricultural buildings

4

Commercial buildings

3

Hotel buildings

4

Machinery, plant and furniture

10

Machinery and equipment of agricultural and animal

husbandry business

15

Computer hardware and operating software

20

Application software

 

- Upto €1.709

- Over €1.709

100

33 1/3

Tools

33 1/3

Tractors, excavators, trenches, cranes, bulldozers

25

Motor cars (except saloons) and motorcycles

20

New Cargo Ships

8

New Passenger Ships

6

Second hand cargo and passenger ships and additional capital expenditure

 

The cost is written off over the expected useful life of the ship based on the certificates issued by the Shipping Registry Organisation

 

Income Tax - Deductions for individuals

 

Expenses of rented property

20% of the rents

Interest paid in respect of rented buildings

100%

Subscriptions to unions or professional associations

100%

Donations to approved charitable institutions, supported by receipts

100%

Social insurance contributions, life insurance premiums and contributions to approved provident funds, pension funds or medical funds

Up to 1/6 of taxable income before the deduction of these allowances

The life insurance should be taken on the life of the taxpayer but not of his/her spouse. The allowance granted for insuring the life of the spouse is still valid for policies effected before 1 January 2003

 

The annual premiums are restricted to 7% of the insured amount

 

In the case of cancellation of a life insurance policy within 6 years from the day of its issue, a percentage of the premiums, which were previously allowed, is taxable as follows:

 

- Cancellation within 3 years

- Cancellation from 4 to 6 years

30%

20%

 

Income Tax - Deductions allowed for companies

For the purpose of ascertaining the chargeable income, there shall be deducted all outgoings and expenses wholly and exclusively incurred by the company in the production of income including:

  • Repair of premises, plant, machinery and means of transport
  • Ordinary annual contributions paid by an employer to approved funds
  • Bad debts of any business
  • Expenditure for scientific research
  • Expenditure on patents or patent rights or intellectual property rights
  • Donations or contributions made for educational, cultural or other charitable purposes without a limit
  • Expenditure up to €1.200 for building area up to 120 sq m, up to €1.100 for building area of 121–1000 sq m, up to €700 for building area above 1000 sq m, made for maintenance, preservation or restoration of an ancient monument
  • Interest in relation to the acquisition of business assets used in the business
  • Contributions to a fund approved under regulations, for educational purposes and maintenance of an individual attending any university, college, school or other educational institution
  • Expenses in relation to rents receivable
  • Interest relating to a rented property.

Income Tax - Deductions not allowes

  • Domestic or private expenses including the cost of travelling between the place of residence and the place of work
  • Rent of premises owned and used by the person carrying on of a business
  • Remuneration or interest on capital paid or credited by the person carrying on business
  • Cost of goods taken out of the business for private use
  • Disbursements or expenses not wholly or exclusively paid out for acquiring the income
  • Any sum employed or intended to be employed as capital
  • Expenditure for improvements, alterations or additions to immovable property
  • Sums recoverable under an insurance or contract of indemnity
  • Rent or cost of repairs of premises not incurred for the purposes of earning the income
  • Taxes
  • Payments of a voluntary nature
  • Expenses of business entertainment, including hospitality of any kind, made in connection with a business and that exceeds 1% of the gross income of the business. In case that these expenses do not exceed 1% of gross income, then the allowable deduction is up to a maximum of €17.086.
  • Expenses of a private motor vehicle
  • Interest applicable to the cost of purchase of a private motor vehicle or any other asset not used in the business. This provision does not apply after the lapse of seven years from the date of purchase of the relevant asset.

Income Tax - Tax Rates – Individuals

 

Taxable income €

Tax rate %

Amount of tax €

Accumulated Tax €

0-19.500

19.500-28.000

28.000-36.300

Over 36.300

0

20

25

30

0

1.700

2.075

0

1.700

3.775

 

Tax rates – Corporation tax 10%

Allowance for foreign tax

In case that foreign tax was paid on income subject to income tax, this can be given as a credit against the resulting income tax liability on that income irrespective of the existence of a double tax treaty with the foreign country.

Income Tax - Special tax rates

Foreign pensions of individuals:

- Upto €3.420

- Over €3.420

0%

5%

The gross amount of any royalty, premium, compensation or other income, derived from sources within Cyprus by any person not being resident, is subject to withholding tax of

10%

The gross amount of any rental in respect of the showing of cinematograph films in Cyprus, derived by any person who is not resident, is subject to withholding tax of

5%

The gross income derived by an individual not resident in Cyprus, from the exercise in Cyprus of any profession or vocation or of public entertainers including football clubs and other athletic missions, is subject to withholding tax of

10%

 

Income Tax- Tax Losses

Generally, loss from one source of income is set off against income from other sources in the same year. Any loss remaining after the set off is carried forward indefinitely.

Loss in respect of the year 1997 and after, which was not set off against profits up to the year 2002, may be carried forward to the year 2003 and the following years.

In case there is any change in the ownership of the shares of a company and a substantial change in the nature of the business of the company, within any three-year period from the year of the loss, then the loss cannot be carried forward to the following years.

Set-off of group losses are allowable only with profits of the corresponding year of assessment. Both companies should be members of the same group for the whole year of assessment.

Two companies shall be deemed to be members of a group if:

  • one is by 75% subsidiary of the other, or
  • each one separately are by 75% subsidiaries of a third company.

Losses incurred by any person from any business carried on outside Cyprus, can be set-off from the same person's income from other sources for the same year.

In the case where an owner of a business, including a partnership, converts his business into a company, any accumulated losses of the owner may be carried forward to the company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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