Clear and brief information to support you manage your tax obligations efficiently in Cyprus

Clear and brief information to support you manage your tax obligations efficiently in Cyprus

This article by Cyprus based, International Lawyers, G Kouzalis LLC, is to assist you comprehend and navigate the intricacies of paying income tax in Cyprus. We aim to provide you with clear and concise information to help you manage your tax obligations efficiently. Here’s an overview of the key aspects of paying income tax obligations in Cyprus:

Understanding Tax Residency

1. Tax Resident:
   • An individual is considered a tax resident in Cyprus if they reside in the country for more than 183 days in a tax obligations year.
   • Also, under the “60-day rule,” an individual can be a tax resident if they stay in Cyprus for at least 60 days, provided they:
     • Frstly, have a permanent home in Cyprus.
     • Secondly, conduct business or work in Cyprus.
     • Also, are not tax residents of any other country.
2. Non-Tax Resident:
   • Further, non-tax residents are taxed only on income earned within Cyprus.

Income Tax Rates

Cyprus uses a progressive tax rate system for individuals:

• 0% on income up to €19,500.
• 20% on income between €19,501 and €28,000.
• 25% on income between €28,001 and €36,300.
• 30% on income between €36,301 and €60,000.
• 35% on income over €60,000.

Allowances and Deductions of  Tax Obligations

1. Personal Allowance:
   • The first €19,500 of income is tax-free.
2. Deductions: Various deductions can reduce your taxable income, including:
   • Social insurance contributions.
   • Also, contributions to approved pension and provident funds.
   • Life insurance premiums (subject to limits).
   • Furthermore, donations to approved charities.
   • Also, interest on housing loans for a primary residence (for loans up to December 31, 2020).

Other Cyprus tax advantages for individuals

• Further, dividends and interest are exempt from Cyprus income tax for Non-Domiciled individuals.
• Also, gains arising from sale of shares and other securities.
• 50% exemption of remuneration from first employment exercised from Cyprus by persons who were residents outside Cyprus for a period not less than 10 consecutive years immediately prior to the commencement of their employment in Cyprus. The exemption applies for 17 years (lifetime exemption) commencing from the year of employment, if such income exceeds €55.000 per year;
• Also, in the case where remuneration is less than €55.000 per year, a 20% exemption is granted to individuals who were employed outside Cyprus by a non-Cyprus resident employer for three consecutive years prior to the commencement of first employment in Cyprus, up to a maximum of €8.550, for a period of 7 years commencing from the 1st January of the year following the year of employment.
• Further, 100% exemption on remuneration for salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus resident employer, or a permanent establishment outside Cyprus of a resident employer;
• 100% exemption on lump sum repayments from life insurance schemes or from approved provident funds;
• Also, pension in respect of services rendered outside Cyprus is taxed either under the normal income tax rates as above, or under the special mode of taxation, where the first €3.420 are tax free, and above the amount of €3,420 is taxed with a flat tax rate of 5%;
• Also, No inheritance, wealth or gift tax;

Special Defense Contribution (SDC)

• SDC: Applicable to Cypriot tax residents and includes taxes on dividends, interest, and rental income. Therefore, non-domiciled individuals (those not tax residents in Cyprus for at least 17 of the last 20 years) are exempt from SDC.

Capital Gains Tax

• Capital Gains Tax: Mainly imposed on gains from the disposal of immovable property located in Cyprus and shares in companies holding such property. Also, the tax rate is 20%.

Social Insurance Contributions

• Social Insurance: Employees contribute 8.3% of their gross earnings, matched by the employer, with additional contributions from the government.

Filing and Payment of Tax Obligations

1. Tax Year: The tax year runs from January 1 to December 31.
2. Self-Assessment:
   • Also, Individuals with income exceeding €19,500 must file a self-assessment tax return electronically via the TaxisNet system.
3. Deadlines:
   • Tax Return Filing: Generally, tax returns should be filed by July 31 of the following year for employees and pensioners, and by September 30 for self-employed individuals without audited financial statements.
   • Payment: Final tax payments for the previous year are due by August 1. Self-employed individuals pay taxes in two installments: July 31 and December 31 of the current tax year.

Penalties Fot Tax Obligations

• Penalties: Late filing and payment of taxes can incur penalties and interest charges.

International Taxation

1. Double Taxation Treaties:
   • Cyprus has treaties with many countries to avoid double taxation on the same income.
2. Foreign Income:
   • Tax residents are taxed on worldwide income, but foreign tax credits may be available.

Professional Assistance

Navigating the tax system can be challenging, especially for expatriates or those with complex financial situations. Consulting with a tax professional or legal advisor can help ensure compliance and optimize your tax position.

G Kouzalis LLC, committ to providing comprehensive guidance and assistance on all aspects of tax compliance in Cyprus. Our team is here to help you understand and manage your tax obligations effectively.