The Cyprus Tax System

Eli Doron, adv. – Yaron Tikitzky, adv. (c.p.a)

The Republic of Cyprus has been an independent country since 1961, after the United Kingdom has enabled it to detach and create a sovereign nation. Since, Cyprus has become a developed commonwealth, with a strong a stable economy, and even joined the European Union on May 1st, 2004, adopting the Euro as its national currency in January 1st, 2008.

Since 1974, after several years of violence between Greek and Turkish residence of the Cyprus Island, the island has been split to two entities, a Turkish Cypriot entity in the North and a Greek Cypriot entity in the South. However, the internationally recognized Republic of Cyprus has claimed sovereignty on practically all the island, including both entities.

The Cyprus economy has a very developed and progressive infrastructure, making its per-capita GDP above European’s Union average. The economy is much based upon tourism and international investment and business.

One of the main reasons for the foreign investment and business in Cyprus has been the convenient Tax and Corporate Codes. For instance, according to the law in Cyprus, only a company controlled and managed from inside of Cyprus is considered a Cyprus resident company for taxation. In order for a company, incorporated in Cyprus, to be considered a foreign resident company it must provide the authorities with certification for payments in its country of residency. This enables the company to avoid taxation in Cyprus due to the policy by which foreign companies are taxed only for revenues borne from inside of Cyprus (as opposed to Cyprian resident companies that are taxed for local and international revenues).

Moreover, tax rates in Cyprus are very low and many exemptions exist. For example, corporate tax in Cyprus is only 10%, while exemptions exist for dividends from other corporate entities and capital revenues (other than real estate trade and trading of shares of a real estate owning company – which are both subject to a 20% tax rate).

In addition, Cyprian resident companies are obliged to pay a 3-15% Contribution of Defense Tax, which foreign resident companies in Cyprus do not have to pay. E.g. income from interest is subject to a 10% tax, and rent revenues to a 3% tax.

Individuals’ residency test is very simple: if a person shall be at least 183 days of the calendar year in Cyprus he shall be considered a residence (for this matter, entrance and exit days are calculated as full days of presence). Similarly to companies, a resident is subject to tax for local and international incomes, while a foreign resident is subject to local income only, unless otherwise determined in an international treaty. Income tax in Cyprus is progressive in accordance to the following tax brackets:

Yearly Income

Tax Rate

Under 10,000

0%

10,001-15,000

20%

15,001-20,000

25%

Above 20,000

30%

Finally, individual capital income is tax exempt, other than real estate trade or trading a real estate owning company’s shares (which, similarly to company’s, are subject to a 20% tax rate).