The Inland Revenue Department administers the Cyprus direct tax legislation which comprises of various taxes and duties such as income tax, immovable property tax and capital gains tax.
Income tax is levied under the Income Tax Laws and is assessed and collected under the Assessment and Collection of Taxes Laws.
The Cyprus Income Tax Laws apply to both individuals and companies. Partnerships are not subject to tax as separate entities. Their income is allocated and assessed to tax on the partners, whether individuals or companies. Husband and wife are assessed to tax separately, each one on his or her own income.
The Cyprus tax system is a combination of Government assessment and self assessment systems. Self-employed individuals submitting audited accounts fall under the self-assessment system completely. Self-employed individuals not submitting audited financial statements fall under the self-assessment system only as far as the provisional tax is concerned and for employees, a PAYE system is in operation. Ultimately, self-employed individuals who do not submit audited financial statements and employees are Government assessed.
Since 1st January 2003, the Cyprus source territorial system, which was in place up until then, was replaced by taxation of worldwide income earned by Cyprus residents and taxation of Cyprus source income earned by non-residents.
The term “Cyprus resident” for tax purposes, when applied to a physical person, means an individual who resides in Cyprus for a period or more which in aggregate exceed 183 days in a calendar year.
In order to arrive at the chargeable income, income from all sources is added up followed, as and where applicable, by the deduction of any income exempt from tax, charges and expenses incurred wholly and exclusively for the production of the income, personal allowances, wear and tear allowances and losses carried forward from previous years.
Residents are taxed on their worldwide income from the following sources:
- business profits
- employment income
- dividends and interest income
- pensions and annuities
- property income such as rents, royalties etc
- any consideration in respect of trading goodwill.
Non residents are taxed on their income from the following sources:
- business profits from a permanent establishment situated in Cyprus
- employment income from salaried services provided in Cyprus
- pensions from employment in Cyprus
- income from property situated in Cyprus such as rents, royalties etc
- any consideration in respect of trading goodwill arising in Cyprus
- income from the exercise of any profession or vocation in Cyprus, including the remuneration of entertainers from performances in Cyprus.
Income exempt from tax includes:
- profit on the disposal of securities (such as shares, bonds, debentures etc. of companies incorporated in Cyprus or abroad, and options thereon)
- dividends received
- the whole interest income of individuals (interest income generated from the ordinary activities of a person, including interest which is closely connected with the ordinary activities of a person, will be treated as trading income and not as “interest income” and hence will be fully chargeable to corporation or income tax).
- lump sums received on retirement
- income from a scholarship or similar educational endowment
- capital sums accruing to individuals from approved life insurance policies and approved provident or pension funds
- emoluments of foreign diplomatic and consular representatives who in accordance with the rules and principles of International Law enjoy diplomatic immunity on the basis of reciprocity
- income of individuals from the provision of salaried services abroad to a non-resident employer or an overseas permanent establishment of a resident employer, for an aggregate period exceeding 90 days in the tax year.
Personal allowances and deductions for individuals:
- premiums paid for approved life insurance policies or medical schemes
- contributions made to approved pension or provident funds
- contributions made under the General Health Scheme Laws.
The gross income earned by a non resident individual from the exercise in Cyprus of any profession or vocation, the remunerations of non resident public entertainers or groups of public entertainers (including football clubs and other athletic missions from abroad) derived from performances in Cyprus is subject to withholding tax at the rate of 10%.
Double Tax Agreements
Currently, 33 treaties are in force, covering 41 states: most European Countries, the USA, Canada, China, India, South Africa, Singapore and four Arab countries (Egypt, Syria, Kuwait and Lebanon).
For further information and clarifications a full list of contact telephones and email addresses is provided at the website of the Inland Revenue Department. Incoming Researchers are advised to also contact Tel.: +35722601919 and Email: firstname.lastname@example.org for details concerning own cases.