Income Tax

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Tax Charge

Resident in Cyprus - In the case of a person who is tax resident in Cyprus, tax is levied on all income accruing or arising from sources both within and outside Cyprus, in respect of:

  • Profits or other benefits from any business
  • Profits or other benefits from any office or employment
  • Dividends, interest or discount
  • Rents, royalties or other profits arising from property
  • Any amount or consideration in respect of any trade goodwill reduced by any amount incurred for the purchase of such trade goodwill

Non- Resident in Cyprus - In the case of a person who is tax resident in Cyprus, tax is levied on the income accruing or arising from sources in Cyprus only, in respect of:

  • Profits or other benefits from a permanents establishment situated in Cyprus
  • Profits or other benefits from any office or employment exercised in Cyprus
  • Pensions derived from past employment exercised in Cyprus
  • Rent from property situated in Cyprus
  • Any amount or consideration in respect of any trade goodwill reduced by any amount incurred for the purchase of such trade goodwill
  • The gross income derived by an individual from the exercise in Cyprus of any profession or vocation, the remuneration of public entertainers, and the gross receipts of any theatrical, musical or other group of public entertainers

Definition

Resident in Cyprus, when applied to an individual, means an individual who stays in Cyprus for a period or periods exceeding in aggregate 183 days in the year of assessment and, when applied to a company, means a company whose management and control is exercised in Cyprus.

Permanent Establishment (OECD Model definition) means a fixed place of business through which an enterprise’s business is wholly or partly carried on, and includes a place of management, branch, office, factory, workshop, mine, oil or gas well, quarry or any other place of extraction of natural resources.

Exemptions

DetailsIndividualsOther Persons
Income from interest. Interest accruing to any person from the ordinary carrying on of any business including any interest closely connected with the ordinary carrying on of the business, is not exempted, but included in the calculation of profit100%50%
Dividends100%100%
Remuneration from any office or employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his employment. This exemption applies for a period of three years commencing from 1 January following the year of employment’s commencement20% or5.000(lower of) -
Profit from the sale of securities100%100%
Profit from a permanent establishment situated outside Cyprus, unless the permanent establishment - directly or indirectly - engages more than 50% in activities, which lead to investment income, and the foreign tax burden is substantially lower than the tax burden in Cyprus (practically < 5% headline tax)100%100%
Remuneration from the tendering outside Cyprus of salaried services for a total aggregate period in the year of assessment of more than 90 days to an employer not resident in Cyprus100% -
Deposits with the Cyprus Housing Finance Corporation (up to 25% of total gross income for schemes which started up to 30 April 2003)40% -
Lump sum payments on retirement or pension’s commutation, or a gratuity on death.100% -
Capital sums from life insurance or approved provident funds100% -
Income from scholarship or other educational endowment100% -
Income of any religious, charitable or educational institution of a public character -100%
Income of any co-operative society in respect of transactions with its members -100%
Emoluments from an institution’s foreign officers exercising educational, cultural or scientific function100% -
Emoluments of foreign diplomatic and consular representatives, if not citizens of Cyprus100% -
Income of any local authority -100%
Income of any approved pension or provident fund or any insurance fund -100%
Income of any company formed exclusively for the purpose of promoting art, science or sport -100%
Pensions and special grants under special legislation100% -
Widow’s pensions100% -

Capital Allowances

DetailsAnnual Wear & Tear Allowance %
Industrial buildings4
Agricultural buildings4
Commercial buildings 3
Hotel buildings 4
Machinery, plant and furniture 10
Machinery and equipment of agricultural and animal husbandry business 15
Computer hardware and operating software 20

Application software

- Up to ₤1.000

- Over ₤1.000



100
33 1/3
Tools 33 1/3
Tractors, excavators, trenches, cranes, and bulldozers 25
Motor cars (except saloons) and motorcycles 20
New Cargo Ships 8
New Passenger Ships 6
Second hand cargo and passenger ships and additional expenditure

The cost is written off over the expected useful life of the ship based on the certificates issued by the Shipping Registry Organization

Individuals’ Deductions

DetailsRate %
Expenses of rented property20% of the rents
Interest paid in respect of rented buildings100%
Subscriptions to unions or professional associations100%
Donations to approved charitable institutions, supported by receipts100%
Social insurance contributions, life insurance premiums and contributions to approved pension funds or medical fundsUp 1/6 of taxable income before the deduction of these allowances

The life insurance should be taken on the taxpayer’s life and not on his/her spouse’s. The allowance granted for insuring the life of the spouse is still valid for policies effected before 1 January 2003.

The annual premiums are restricted to 7% of the insured amount.

 
In the case of cancellation of a life insurance policy within 6 years from the day of its issue, a percentage of the premiums, which were previously allowed, is taxable as follows:

- Cancellation within 3 years

- Cancellation from 4 to 6 years




30%

20%

Companies’ Deductions

For the purpose of ascertaining the chargeable income, there shall be deducted all outgoings and expenses wholly and exclusively incurred by the company, including:

  • Repair of premises, plant, machinery and means of transport
  • Ordinary annual contributions paid by an employer to approved funds
  • Bad debts of any business
  • Expenditure for scientific research
  • Expenditure on patents or patent rights or royalties
  • Donations or contributions made for educational, cultural or other charitable purposes without a limit
  • Expenditure up to ₤350 for building area up to 100 sq m; up to ₤300 for building area of 101 – 1000 sq m; up to ₤200 for building area above 1000 sq m, made for maintenance, preservation or restoration of an ancient monument
  • Interest in relation to the acquisition of business assets used in the business
  • Contributions to a fund approved under regulations, for educational purposes and maintenance of an individual attending any university, college, school or other educational institution
  • Expenses in relation to rents receivable
  • Interest relating to a rented property

Not - Allowed Deductions

  • Domestic or private expenses including the cost of travelling between the place of residence and the place of work
  • Rent of premises owned and used by the person carrying on of a business
  • Remuneration of interest on capital paid or credited by the person carrying on business
  • Cost of goods taken out of the business for private use
  • Disbursements or expenses not wholly or exclusively paid out for acquiring the income
  • Any sum employed or intended to be employed as capital
  • Expenditure for improvements, alterations or additions to immovable property
  • Sums recoverable under an insurance or contract of indemnity
  • Rent or cost of repairs of premises not incurred for the purposes of earning the income
  • Taxes
  • Payments of a voluntary nature
  • Expenses of business entertainment, including hospitality of any kind, made in connection with a business and that exceeds 1% of the gross income of the business. In case that these expenses do not exceed 1% of gross income, then the allowable deduction is up to a maximum of ₤10.000
  • Expenses of a private motor vehicle
  • Interest applicable to the cost of purchase of private motor vehicle or any other asset not used in the business. This provision does not apply after the lapse of seven years from the date of purchase of the relevant asset

Individuals Tax Rates

Taxable Income ₤Tax Rate %Amount of Tax ₤Accumulated Tax ₤
0 – 10.000
10.000 – 15.000201.0001.000
15.000 – 20.000251.2502.250
Over 20.00030   

Special Tax Rates

DetailsRate %

Foreign pensions of individuals:

- Up to ₤2.000

- Over ₤2.000

0%
5%

Income of a person from the rendering of ship management services, as specified in the Merchant Shipping Law (in the case of an individual, no personal allowances, credits or exemptions are allowed). A company can choose to pay special tonnage tax, if more beneficial.

4,25%

The gross amount of any royalty, premium, compensation or other income, derived from sources within Cyprus by any non-resident person, is subject to withholding tax (subject to DTT / use of Interest & Royalties Directive). If rights are used outside Cyprus then 0% is applicable.

10%

The gross amount of any rental in respect of the showing of cinematograph films in Cyprus, derived by any non-resident person, is subject to withholding tax (subject to DTT / use of Interest & Royalties Directive).

5%

The gross income derived by an individual non-resident in Cyprus, from the exercise of any profession or vocation in Cyprus or of public entertainers including football clubs and other athletic missions, is subject to withholding tax.

10%

Tax Losses

Generally, loss from one source of income is set-off against income from other sources in the same year. Any loss remaining after the set-off is carried forward indefinitely.

Losses in respect to the year 1997 and after, which were not set-off against profits up to the year 2002, may be carried forward to the year 2003 and the following years.

In case there is any change in the ownership of the company’s shares and a substantial change in the company’s nature of the business, within any three-year period from the year of the loss, then the loss cannot be carried forward to the following years.

Group Losses Set-off are allowable only with profits of the corresponding year of assessment. Both companies should be members of the same group for the whole year of assessment.

Group relief applies between Cyprus Resident Companies and not with non-resident members of the group.

Two companies shall be deemed to be members of a group if:

  • One is by 75% subsidiary of the other, or
  • Each one separately is 75% subsidiary of a third company.

Losses incurred by any person from any business carried on outside Cyprus, can only be set-off from the same persons’ income from other sources for the same year.

In the case where a business owner, including a partnership, converts his business into a company, any of the owner’s accumulated losses may be carried forward to the company.

Losses of Permanent Establishments (PE) situated outside Cyprus can be offset against profits arising in the Republic. However, in the future when profits arise in the PE, an amount equal to the losses previously utilized will be included in the taxable income of the resident company ("claw-back provisions").