Good to know about Cyprus finance
Taxation system in Cyprus
Cyprus has one of the most attractive taxation systems within the European Union. Below we highlight the main features of the Cyprus taxation system:
Corporate tax system
- 12,5% corporate tax
- Dividend income is exempt
- Sale of securities is exempt
- Notional Interest Deduction for new capital introduced
- No withholding tax on outgoing payments
- Group relief availability (75% holdings)
- Intangible Property Regime (IPP)
- Foreign exchange differences from transactions – Neutral
- Any approved re-organization is exempt
Municipality taxes
Depending on the area of incorporation of the company there is an additional fee imposed by the relevant municipal. For example the Municipality of Paphos has decided that every company registered in the territory of Paphos should pay an additional fee of €200 / per year to the Municipal.
Income tax system
A Cyprus tax resident individual will be subject to personal income tax subject to a progressive system as follows:
| Income (€) | Rate (%) |
0 – 19.500 | 0 |
19.501 – 28.000 | 20 |
28.001 – 36.400 | 25 |
36.301 – 60.000 | 30 |
Over 60.000 | 35 |
In addition, the following should be noted:
- Inherent tax rate – N/A in Cyprus
- Gift tax rate (%) – Nil if up to third degree relative
- Donation to approved charities – Tax deduction
- Exemptions for employment income (50% exemption rule | 20% exemption rule)
- Deduction up to 1/5 (as of 1/1/2019) for social insurance contribution, medical fund, provident fund and life insurance (subject to additional restrictions)
Foreign pension income
Tax free up to €3.420 per year. Any income above €3.420 will be subject to a flat rate tax at the rate of 5%. Alternatively, it could be add to the rest of the sources of income and taxed under the progressive tax system.
Social Insurance Contributions
The social insurance contributions are capped to €54.864 (€1.055 per week) for the year 2020 at the rate of 8,3% for both employer and employee (amended from 1/1/2019).
General Healthcare System (GHS)
Effected as of 1/3/2019 employers should contribute 1,85% and employees 1,7% on employee’s gross income. As of 1/3/2020 and onwards the rate has been increased to 2,9% for employers and 2,65% for employees. The maximum cap for imposition of GHS is €180.000 per yearly income. Below is a summarized table:
| Category | Rate % as of 1/3/2019 | Rate % as of 1/3/2020 |
Employers | 1,85% | 2,9% |
Employees | 1,7% | 2,9% |
Self-employees | 2,55% | 4,0% |
Individuals earning rental income or dividends | 1,7% | 2,65% |
Value Added Tax (V.A.T.) in Cyprus
VAT was introduced in Cyprus in 1992, however after the accession of Cyprus in the European Union, a lot of amendments have been made to follow the Directive 2006/112/EC. VAT is a general form of taxation, imposed on a consumption basis on supplies of goods or provision of services.
Currently the standard Cyprus VAT rate is 19%; however Cyprus has also two reduced VAT rates of 9% and 5% and a zero rate percentage on certain transactions. There are also particular transactions which are exempt from Cyprus VAT purposes such as provision of health and welfare services, educational etc. Any intra-community transactions between taxable persons in different EU Member States could be exempt from the imposition of VAT provided that they are registered for VAT purposes in the different EU Member States and subject to relevant conditions.
Below we summarize certain examples of transactions (e.g. consultation or advisory) between business to business (B2B) and business to consumers (B2C):
B2B or B2C transactions in Cyprus
The transaction could be subject to Cyprus VAT 19% unless it is subject to reduced, zero rate or exempt.
B2B transaction in EU
The Cyprus entity should obtain the VAT registration number of the client, not impose any VAT and submit VIES declarations. The transaction could be subject to conditions where the place of supply is determined in Cyprus or in another country triggering other obligations. In this case Cyprus VAT or foreign VAT might need to be imposed.
B2C transactions in EU or non-EU
The transaction could be subject to Cyprus 19% VAT, unless the place of supply changes. Cyprus entities providing electronically supplied services to consumers in other EU Member States, will most probably be obliged to register to the Mini One Stop Shop (MOSS) if the threshold is exceeded.
Non-Domiciliation in Cyprus
In principle, as per Special Defense Contribution (hereinafter “SDC”) Law, any dividends or interest income earned by Cyprus tax residence is subject to 17% and 30% respectively. The rental income is also subject to SDC at the rate of 3% on the 75% of the gross amount. This was applicable until 15/07/2015.
As of 16/07/2015, a Cyprus tax residence that has the status of “non-domicile” is exempt from the SDC. The following should be considered when determining the domicile status of an individual:
- The individual maintains a domicile of choice outside Cyprus and was a non Cyprus tax resident for 20 consecutive years prior to the current year of assessment or
- Was not a Cyprus tax resident for 20 consecutive years immediately prior to 16/6/2015
