Understanding the Cyprus Tax System: A Comprehensive Guide by Medousa Developers
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Cyprus is not only a beautiful island nation but also a strategic financial hub with a highly favorable tax system. As Medousa Developers, a prominent construction and developer company, we understand the importance of navigating the tax landscape effectively. Here, we provide a detailed overview of the Cyprus tax system for individuals and corporations alike.
Personal Income Tax
Basis of Taxation All individuals who are tax residents of Cyprus are taxed on their worldwide income. Non-residents are only taxed on their income accrued or derived from sources within Cyprus. An individual is considered a tax resident if they spend more than 183 days in Cyprus within a calendar year. Alternatively, under the "60-day rule" introduced in 2017, an individual can also be considered a tax resident if they meet certain conditions, including spending at least 60 days in Cyprus, not being tax resident in any other country, and having significant ties to Cyprus, such as owning or renting a permanent residence or conducting business there.
Tax Rates and Bands Cyprus employs a progressive tax rate system for personal income, with rates as follows:
- 0% for income up to €19,500
- 20% for income between €19,501 and €28,000
- 25% for income between €28,001 and €36,300
- 30% for income between €36,301 and €60,000
- 35% for income over €60,000.
Special Provisions Foreign pension income is taxed at a flat rate of 5% for amounts exceeding €3,420, with an option to be taxed at normal rates. Widower’s pensions from Cyprus sources are taxed at 20% for amounts exceeding €19,500, again with the option to elect for normal tax rates.
Corporate Tax
Basis of Taxation A company is considered a tax resident of Cyprus if it is managed and controlled in Cyprus. From 2023, any Cyprus-incorporated company is deemed a tax resident unless it is a tax resident in another jurisdiction. Tax resident companies are taxed on their global income, while non-resident companies are only taxed on income derived from activities within Cyprus.
Tax Rates The standard corporate tax rate in Cyprus is 12.5%, one of the lowest in the European Union, making it an attractive destination for businesses.
Exemptions Certain types of income are exempt from corporate tax, including:
- Profits from the sale of securities
- Dividends, except those that are tax-deductible for the paying company
- Interest not arising from the ordinary activities of the company
- Profits from a foreign permanent establishment under certain conditions
- Gains from foreign exchange differences, except those related to trading in foreign currencies and derivatives.
Special Contribution for Defence (SCD)
The Special Contribution for Defence is applicable to dividend income, ‘passive’ interest income, and rental income. It applies to both individuals who are tax residents and domiciled in Cyprus and to Cyprus tax-resident companies. An individual is domiciled in Cyprus for the purposes of Special Contribution for Defence if (s)he has been a tax resident in Cyprus for at least 17 out of the 20 tax years immediately prior to the tax year of assessment, If not (s)he is exempt from Special Contribution for Defence Tax.
The rates are as follows:
- Dividend income: 17%
- Passive interest income: 30%
- Rental income: 3% (on 75% of the gross income after deductions).
Key Benefits of the Cyprus Tax System
- Low Corporate Tax Rate: At 12.5%, it is one of the most competitive in the EU.
- Extensive Double Tax Treaties: Cyprus has an extensive network of double tax treaties that mitigate the risk of double taxation.
- EU Membership: As a member of the European Union, Cyprus adheres to all EU tax directives.
- Strategic Location: Cyprus serves as a gateway between Europe, Asia, and Africa, making it a strategic location for business.
Navigating the tax system in Cyprus can be straightforward with the right guidance. The attractive tax rates, combined with the strategic benefits of operating in Cyprus, make it a compelling choice for both individuals and businesses.
Note: This overview is based on information from PwC's "Tax Facts & Figures 2024 - Cyprus" publication. For personalized advice and detailed planning, professional consultation is recommended.
At Medousa Developers, we are committed to not only building structures but also building understanding and success in every facet of business, including tax planning and compliance.