Taxes for Expats in Cyprus – 2020-2021

After speaking about expat taxes in numerous countries, including  ThailandSouth Korea and Japan,  GermanySingaporeFrance and the Philippines, this article will speak about Cyprus.

Alongside looking at income taxes for individuals, we will also focus on other forms of tax, including for firms and on capital gains taxes.

Whilst it shouldn’t be considered as tax advice, it is correct as far as we are aware at the time of writing.

If you are looking for portable expat tailored investment solutions, which is what we specialise in, you can contact me on this form.

Often it is far more tax-efficient to invest overseas, in a portable structure, as an expat, as opposed to sending money home.

Introduction

Cyprus is the third largest island in the Mediterranean after Sicily and Sardinia, with an area of ​​9,251 sq. Km (3,572 sq. Miles).

It is located in the northeastern Mediterranean Sea, 300 km north of Egypt, 90 km west of Syria and 60 km south of Turkey. The Greek island of Rhodes is located 360 km northwest.

The population of the Republic of Cyprus is 875 900 people (2018), the island is home to about 1.2 million people. The capital and largest city is Nicosia; spoken languages ​​are Greek and Turkish.

As for net migration, there are 19,142 immigrants, 11,752 immigrants in total, while net migration is +7 390 or 9.4 migrants per 1,000 population.

The location of Cyprus matches the country’s multifaceted culture; drift across the Mediterranean, covering both Greek and Turkish territories and being a distant neighbor of the Levantine countries. It’s not hard to see why it attracts expats from all over the world. 

Today Cyprus also has around 110,000 foreign permanent residents. Moreover, 10,000 and 30,000 are undocumented illegal immigrants. 98.8% of Cypriots are Greeks, 1% are Armenians, Turks and Maronites.

However, the largest foreign nationals come from the ethnic groups of Greece, Great Britain, Romania, Bulgaria, the Philippines, Russia, Sri Lanka, Vietnam, Syria and Ukraine. A small number of people come from Germany, Georgia, Poland and India. Therefore, in addition to Greek and English, they also speak Romanian and Russian, Bulgarian, Arabic, Filipino and Turkish.

Today in Cyprus there are many communities of expatriates, due to the large number of the latter, who hold various events and meetings for them in order to form a social environment around these groups of people.

The country has even developed an extensive global platform with a worldwide presence to discuss important issues and concerns, such as seeking help with employment in Nicosia, getting help through local bureaucracy or wanting to know the best places to live on the island.

If you are one of the expats living in Cyprus, it is important to understand the Cyprus tax regulations that you are facing.

This article provides a general overview of the tax situation in Cyprus, however, it cannot be used in isolation or relied on in deciding your tax liability in Cyprus. You should always seek professional advice from a qualified Cypriot tax professional. However below you’ll find all the necessary information about the expat tax types and amounts in Cyprus.

Who pays taxes in Cyprus?

All individuals who are tax residents of Cyprus are taxed on all taxable income accrued to or derived from all sources in Cyprus and abroad.

Non-residents are taxed only on their Cypriot income from work in Cyprus, permanent establishment in Cyprus, lease of immovable property located in Cyprus and pensions from work in Cyprus.

If you are an expatriate resident, you will be taxed on your worldwide profits or other business benefits, profits or other benefits from an office or job, dividends, interest or discounts, pensions, and any rental income from real estate.

All citizens of the European Union are eligible to work in Cyprus, but must register with the immigration authorities within four months after moving to Cyprus. Upon registration, they will receive a registration certificate for citizens of the Union.

You are considered a Cyprus resident if you are in Cyprus for a total of more than 183 days in any calendar year.

Days in and out of Cyprus are calculated as follows:

  • The day of departure from Cyprus is considered the day of residence outside Cyprus.
  • The day of arrival in Cyprus is considered the day of residence in Cyprus.
  • Arrival and departure from Cyprus in one-day counts as one day of residence in Cyprus.
  • Departure and arrival in Cyprus on the same day are counted as one day of residence outside Cyprus.

Paid foreign taxes may be offset against personal income tax liabilities. The tax year in Cyprus is the calendar year from 1st January to 31st December. To date, Cyprus has signed over 55 double taxation treaties with other countries.

Basic overview of taxes in Cyprus

Pension income abroad is taxed at a flat rate of 5% for amounts exceeding EUR 3,420. However, you can choose to tax each year at the regular tax rates and ranges shown above.

The Cypriot-source widower’s (widower’s) pension is taxed at a flat rate of 20% for amounts exceeding € 19,500.

Again, the taxpayer in question may, however, opt to tax on an annual basis in the normal tax rates and ranges indicated above.

An individual working in Cyprus and earning over € 19,500 tax-free must file an annual tax return (IR1) annually.

The due date is April 30th following the tax year if the declaration is submitted manually. An extension until July 31st is provided if the declaration is submitted electronically.

Foreign interest and dividends received where special defense contribution has not been deducted at source but is applicable, is due by 30 June for the first half of the year in which the interest and dividends are received, and by 31 December for the second half of the year in which interest and dividends are received.

Income tax types and the taxation process

There are different types of income taxes in Cyprus such as, about what we are going to talk and discuss:

  • Employment income tax
  • Self-employment and business income for expats
  • Investment income tax rules for expats

So, we all know that wherever you live and work, your salary, personal income will be taxed because it’s the main source of the government’s budget, so now let’s talk about each of the mentioned income tax type, let’s go.

Employment Income Tax

Foreign tax residents in Cyprus are taxed on all profits or profits from any office or work in Cyprus or abroad. Income from employment from foreign sources is not taxable if the recipient spends at least 90 days in any calendar year outside Cyprus. This is known as the “90 day rule”.

An individual who is not a Cyprus tax resident is taxed only on profits or profits from any office or work in Cyprus.

Income tax liable to tax in preparing taxes for expats includes income from work, such as the estimated value of any “additional services”.

There are some important exceptions to be aware of:

Remuneration for any work performed in Cyprus by an individual who was not a resident of Cyprus prior to the commencement of the work is exempt (in the amount of 50% of the remuneration) for 10 years for work starting from 1 January 2012 – provided that the annual remuneration exceeds 100,000 euros.

For employment commencing on 1 January 2015, the exemption does not apply if the specified individual was tax resident in Cyprus for 3 (or more) tax years out of 5 tax years immediately preceding the tax year of commencement of employment, or in the previous tax year.

In some cases, it is possible to apply for tax exemption if the income is below 100,000 euros per year.

Another exemption to be aware of is the 20% remuneration with a maximum amount of € 8,550 per year – this is based on remuneration for any work performed in Cyprus by an individual who was not a Cyprus resident prior to the start of the employment.

For jobs starting in or after 2012, the exemption applies for 5 years starting with the tax year following the year of commencement of employment, with the last eligible tax year being 2020.

This exemption cannot be claimed in addition to the aforementioned 50% exemption for work income, because the Department of Internal Revenue only allows one of the above two deductions.

Self-Employment And Business Income For Expats

Resident expats are subject to income tax on self-employment income. Non-residents are subject to income tax on self-employment income derived from Cyprus sources.

Investment income tax rules for expats

Received dividends and interest are exempt from income tax. Dividends received by resident individuals are subject to a defense tax of 17%. Interest earned by resident individuals is subject to a defense tax of 30%.

Pensions received by residents for work outside Cyprus are taxed at the rate of 5% for amounts exceeding € 3,420. Income tax is not levied on dividends and interest paid to non-residents.

More about Capital Gains Tax

Do you have to pay Capital Gains Tax?

Foreigners’ tax at a rate of 20% is imposed on profits derived from the sale of immovable property located in Cyprus or from the sale of shares of companies whose assets include immovable property located in Cyprus, unless the shares are listed on a recognized stock exchange.

Profit is the difference between the proceeds from the sale and the original cost of the property, adjusted for the increase in the cost of living index. No other assets are subject to capital gains tax.

Capital gains and real estate in Cyprus

Only income from the sale of real estate located in Cyprus is taxed. Gains from the sale of shares, foreign property or any other asset are not taxed in Cyprus.

Please note that you are also responsible for profits derived from non-listed shares of companies owning Cyprus real estate and from shares that directly own such real estate.

Since December 2015, when a company indirectly owns immovable property in Cyprus and at least 50% of the market value of shares is held by immovable property located in Cyprus, profits from the sale of such shares are subject to capital gains tax.

An exception is property acquired between 16 July 2015 and 31 December 2016. There is no charge for assets transferred in the event of death or between spouses or family members up to third degree.

This way, you can transfer property to next of kin or even brother, sister / aunt / uncle, etc. without any obligation.

If you sell one property to buy another, if all profits are carried over to the new home, you do not need to pay any taxes.

If all profits are not rolled over, tax payments are deferred until the new property is sold.

There may also be exceptions where land and buildings are transferred to or from family businesses, although there are restrictions on the length of ownership, etc.

A one-time life benefit of 85,430 euros is granted upon the retirement of a resident’s primary residence after he has lived there for at least five years.

This is a one-time benefit and there are no additional benefits or benefits after full use.

If this exemption is not fully utilized, the remainder cannot be carried over to the disposal of the future main house.

As this exemption applies to primary residence, it does not apply to non-residents. However, they receive a lower lifetime benefit of € 17,086. For the sale of agricultural land 25,629 euros were paid.

Only one type of rebate can be applied to a specific disposal, and the maximum exemption from capital gains tax (when more than one rebate applies) is € 85,430.

About Special Defense Contribution

A Cyprus tax resident individual residing in Cyprus is subject to Special Defense Contributions from the following sources of income at the specified rates:

Dividends – 17%

Percentage – 30%

Interest on Cyprus government bonds and savings certificates – 3%

Rental income – 2.25%

Cyprus tax residents and Cyprus tax residents not resident in Cyprus are exempt from this special defense contribution.

Consequently, a non-Cyprus resident individual who moves to Cyprus will be exempted from this Special Defense Contribution even if they spend more than 183 days in Cyprus in the tax year.

About Inheritance tax

Inheritance tax was abolished on January 1, 2000. However, in accordance with the Inheritance of the Deceased Act, the executor / administrator of the estate of the deceased must file a statement of assets and liabilities of the deceased with the tax authorities within six months from the date of death.

Finally, on this point, don’t assume that just because you emigrated to live in Cyprus your property will not be subject to inheritance tax (IHT) in your old country of residence or in any country where you hold assets. For example, individuals residing in the UK are responsible for the IHT on their property worldwide.

About Social security payments in Cyprus

Social security contributions are made by natural persons working or self-employed in Cyprus. The employer also makes contributions to his employees. Contributions are calculated by applying appropriate contribution rates to weekly or monthly wages subject to certain income restrictions.

Employers’ contributions = social security fund 7.8%, reserve fund 1.2%, apprenticeship training 0.5%, social cohesion fund 2%.

Employee Contributions = 7.8% Social Security Fund

Self-employed contributions = social security fund 14.6%

Foreign nationals employed by local employers must contribute to the Cyprus social security system, unless one of the following conditions applies when filing tax returns for expats.

  • They can claim exemption based on bilateral agreements concluded by Cyprus (applicable to employees working in Cyprus for up to three years).
  • They are European Union (EU) citizens who are on a business trip to Cyprus.

Personal expenses and benefits for expats

The following are exempt from income tax:

  • 50% remuneration from any work performed in Cyprus by an individual who resided outside Cyprus prior to starting his or her employment in Cyprus. The exemption is valid for ten years starting from the first year of employment, provided that the employee’s above income exceeds EUR 100,000 per year. This exemption does not apply if the employee was tax resident in Cyprus in the previous tax year or for at least three of the last five tax years immediately before the tax year of commencement of employment.
  • 20% remuneration or € 8,550 (whichever is less) from any work performed in Cyprus by an individual who resided outside Cyprus prior to starting work. This exemption applies for five years from January 1 following the year of commencement of employment and may be claimed until the 2020 tax year.
  • All interest income
  • All dividend income
  • All profits from the sale of securities such as stocks and bonds
  • Remuneration for the provision of paid services to a non-resident employer located outside Cyprus or the overseas office of a resident employer for a cumulative period of a year exceeding 90 days
  • Any lump-sum payment received as monetary benefit upon retirement, pension replacement, death benefit, or compensation for death or injury.
  • Any lump sum repayment from life insurance schemes or from approved reserve funds. Among other items of expense for income tax purposes, the following are deducted:
  • Contributions to approved reserve funds
  • Subscribing to trade unions or professional organizations
  • Donations to approved charities
  • Rental costs of buildings up to 20% of rental income.

What are the main tax benefits for expats?

Foreigners who lived abroad and were not tax residents of Cyprus prior to their arrival in Cyprus may be eligible for the following tax benefits:

  • 50% exemption from their income for 10 years if their remuneration in Cyprus exceeds € 100,000 per year.
  • 20% exemption from their income or 8,550 euros (whichever is less) for a period of 5 years in case of any work in Cyprus.
  • 5% reduced rate for retirement abroad over € 3,420
  • 100% exemption from Special Contribution for Defense (SDC) on dividends, interest and rental income for individuals without a permanent residence
  • 100% exemption from wages outside Cyprus for more than 90 days for an employer who is not a resident of Cyprus
  • Capital gains from the sale of immovable property located outside Cyprus are exempt from tax.
  • No inheritance and gift tax
  • No wealth tax

A few reasons you should embrace understanding taxes

  • Understanding taxes helps you avoid mistakes

Have you ever said, “I should have known better”? Perhaps not with regard to taxes, but it can certainly apply to them.

Many well-intentioned people end up in tax problems due to mistakes of not knowing. They didn’t try to cheat, but nevertheless they made a mistake simply because they didn’t know what they were doing. Understanding taxes greatly reduces the likelihood of mistakes due to ignorance.

In addition, having good basic knowledge will help you not only avoid difficulties, but also avoid missing conclusions.

  • Understanding taxes helps keep records

This may seem intuitive, but if you don’t know what you can and cannot claim for taxes, then you won’t know what kind of records you should keep. Of course, your CPA can do it for you, but only if you’re willing to pay for it so that your receipts are organized and categorized.

Justifying different income and expenses is fairly straightforward. But you need to know which records to keep and which not to bother. Once you understand the basics of your taxes, it’s easy to determine, as well as what other information you need, such as the business purpose of the deductible business lunch. (After all, this is a business lunch only if it has a business purpose!)

Simple things like this will help you keep accurate records and not miss out on important information that could cost you in the long run.

We hope this deep and comprehensive guide will help Cyprus residents and future expats to be informed of the tax system of the country they live and work. Always know how much of your income goes to the government.

Conclusion

Cyprus is a relatively tax-efficient place to live as an expat. It depends, however, where your income is sourced from, and many other factors.

It always pays to prepare for these things before you move to a new country, as these rules can always change, sometimes on a yearly or sub-yearly basis.

This is especially the case in the world we are living in today, where lockdown and coronavirus have increased the need for governments to raise taxes in the future.

Further Reading

Does it make sense to invest a very high percentage of your salary if you can afford to do so?

I was asked that question recently and I answered on the article below.

Blog Comments

Good afternoon, we are should setup a company in Cyprus to move the activity there. and would like to know if we as European expats never resident in Cyprus before, would be entitled to the 50% tax rate exemption. Many thanks for your advise
David

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