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PERSONAL INCOME TAX

Basis of taxation for individuals

A Cyprus tax resident individual is taxed on all taxable income accruing or arising from sources both within and outside Cyprus. On the other hand, a non-Cyprus tax resident individual is taxed only on taxable income accruing or arising within Cyprus.

In 2017, the Income Tax Law of Cyprus has been amended with regard to the provisions relating to the definition of tax residency of individuals in Cyprus, replacing the 183 days rule.

The new definition, which becomes effective as of 1 January 2017,  states that if an individual does not remain in any other state for a period exceeding 183 days in the year of assessment and is not tax resident in any other state for the same year of assessment, then that individual will be considered tax resident in Cyprus if all of the below conditions are met:

  • The individual remains in Cyprus for at least 60 days in the year of assessment and,
  • The individual carries out business in Cyprus or is employed in Cyprus or holds a position to a person tax resident in Cyprus at any time during the year of assessment and,
  • The individual maintains a permanent residence in Cyprus either owned or rented.

For calculating the days of presence in the Republic of Cyprus:

  • The day of arrival is considered as a day in the Republic.
  • The day of departure is considered as a day out of the Republic.
  • The arrival into the Republic and departure from the Republic on the same day is considered as a day in the Republic.
  • The departure from the Republic and return to the Republic on the same day is considered as a day out of the Republic.

If the individual ceases to carry out business in Cyprus or be employed in Cyprus or hold a position to a person tax resident in Cyprus then the individual will not continue to be tax resident in Cyprus for that year of assessment.

Tax Rates for Individuals:
Taxable income Tax rate Tax Cumulative tax
Euro € % Euro € Euro €
First 19.500 0 0 0
From 19500 to 28.000 20 1.700 1.700
From 28.001 to 36.300 25 2075 3.775
From 36.301 to 60.000 30 7.110 10.885
Over 60.000 35    
Tax Exemptions:
Type of Income Exemption
Interest income (other than interest arising in the ordinary course of business)  100%
Dividend income 100%
Remuneration for first employments exercised in Cyprus commencing after 26 July 2022 20% of remuneration or €8,550 (whichever is lower)
Remuneration for first employments exercised in Cyprus commencing from 1 January 2022 with remuneration exceeding €55,000 50% of remuneration 
Remuneration from salaried services outside the Republic for more than 90 days in a tax year to a non-resident employer or a permanent establishment outside the Republic of a resident employer 100%
Profits arising from the sale of Securities (note 1)  100%
Profits of a permanent establishment outside the Republic (certain conditions apply)  100%
Lump sum received as retiring gratuity, commutation of pension, death gratuity or as consolidated compensation for death or injury  100%
Lump sum received from repayment of life insurance or approved provident funds  100%
Foreign exchange (FX) gains, other than gains arising from trading in foreign currencies and related derivatives  100%
Capital gain arising from the disposal of intellectual property rights under the IP regime  100%
Rent from a preserved building (certain conditions apply) 100%

Notes:

1. The term “Securities” include shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated in Cyprus or abroad and options thereon. As per a circular issued by the Tax Authorities, the term also includes among others, options on Securities, short positions on Securities, futures/ forwards on Securities, swaps on Securities, depositary receipts on Securities (ADRs, GDRs), rights of claim on bonds and debentures (rights on interest of these instruments are not included), index participations only if they result on Securities, repurchase agreements or Repos on Securities, units in open-end or close-end collective investment schemes.

Tax Deductions:
Type Deduction
Contributions to Social insurance, to approved provident and pension funds, to the General Healthcare System, to medical funds and life insurance premiums  Restricted to 1/5 of the net taxable income before these allowances
Subscriptions to professional bodies and trade unions 100%
Donations to approved charitable organisations 100%
Rental income on buildings 20%
Interest relating to the acquisition of assets used in a business or to the acquisition of a building for rental purposes 100%
Expenditure for scientific research and for Research & Development (Note 1) 100%
Expenditure on film infrastructure and technological equipment (certain conditions apply)  Up to 20%
Expenditure for the maintenance of buildings under preservation order (certain conditions apply) Depends on the size of the building
Donations to political parties (certain conditions apply) Up to €50,000
Investment in an innovative small-medium enterprises (SMEs) (Note 2 - certain conditions apply) Up to 50% of taxable income (capped at €150,000)

Notes:

1. For expenses incurred during the years 2022, 2023 and 2024 (including expenses of a capital nature) for which a deduction is granted in accordance with Section 9(1)(l), an additional tax deduction is granted for research & development expenses, equal to 20% of the relevant expenses. This additional deduction cannot be claimed alongside the deduction provided under the Cyprus IP regime.

2. The tax allowable deduction for an individual investing in an innovative small-medium sized enterprises (SMEs) is available up to 30 June 2024. It is limited to 50% of the investor’s taxable income in the year in which the investment is made and the total deductible amount may not exceed €150,000 per year. The remaining investment cost, which is not claimed as tax deductible, may be carried forward and deducted from the taxable income of the subsequent five years, subject to certain restrictions. The investment must be held for at least three (3) years.

Our Tax Practice Portfolio

Our Tax Department has been thriving for over a decade, with our clients seeking our professionals’ advice and assistance in all aspects relating to taxation for corporates as well as individuals, in line with the latest local and international tax developments.

Our clients entrust us with the structuring of their operations in a way that incorporates the applicable tax incentives and ensures their compliance with any and all of their tax obligations and filing of their tax returns. The exceptional quality of our tax professionals is the reason why our clients select us to be their entrusted tax partners.

Contact us today for an initial, complimentary consultation.

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