Cyprus Tax Guide 2024

Introduction

In this Cyprus tax guide  we provide a summary of the Cyprus tax system, the various forms of tax, and other miscellaneous matters. For the latest developments, please subscribe to our Newsletter. Please note that the information below is of a general nature and should not be taken as advice. For professional advice, you can contact us to provide a tailored response and solution.

INCOME TAX                                                                                                                                                                                   

INDIVIDUALS                                                                                                                                                                                

Tax residence & Basis of Taxation: when an individual is considered tax resident in Cyprus and how tax is charged.

Rates of tax and Special forms of Taxation: at what tax rates are individuals taxed in Cyprus.

Individual’s Tax Exemptions and Deductible Expenses: Incomes which are tax free for individuals and expenses allowable to be deducted to reduce taxable income.

Non-deductible expenses

COMPANIES                                                                                                                                                                     

Tax residence

Basis of taxation

Rate of tax

Allowable Expenses

Non-deductible expenses

Exempt Incomes

Losses

Reorganisations

Annual wear and tear on fixed assets

SOCIAL INSURANCE                                                                                                                                                                    

Employers and Employees                                                                                                                                                         

Self-employed                                                                                                                                                                               

SPECIAL DEFENCE CONTRIBUTION (SDC)                                                                                                                           

Rates                                                                                                                                                                                                

Compliance                                                                                                                                                                                  

Deemed dividend distribution                                                                                                                                               

Non-domiciled individuals                                                                                                                                                      

Disposal of assets at less than market value                                                                                                                   

Company dissolution                                                                                                                                                                

Reduction of capital                                                                                                                                                                 

CAPITAL GAINS TAX (CGT)                                                                                                                                                      

Main provisions                                                                                                                                                                        

Exemptions                                                                                                                                                                                    

Determination of the capital gain                                                                                                                                        

Lifetime exemptions for individuals                                                                                                                                    

VALUE ADDED TAX (VAT)                                                                                                                                                        

VAT rates                                                                                                                                                                                      

Exemptions                                                                                                                                                                                     

VAT registration                                                                                                                                                                       

STAMP DUTY                                                                                                                                                                               

CAPITAL DUTY                                                                                                                                                                              

LAND TRANSFER FEES                                                                                                                                                               

WITHOLDING TAXES                                                                                                                                                                

DOUBLE TAX TREATIES                                                                                                                                                           

Accounting Books and Records                                                                                                                                           

Tax Calendar                                                                                                                  

INTEREST AND PENALTIES                                                                                                                                                    

Special Contribution for Defence

Special contribution for defence is a tax imposed on dividends, passive interest and rents earned by Cyprus tax resident companies and tax resident domiciled individuals. Non-resident companies and resident individuals who are not domiciled in Cyprus are exempt. For the Cypriot Non-Dom regime, please see visit our dedicated page.

Type of incomeIndividuals
Dividend income from Cyprus resident companies17%
Dividend income from non-Cyprus resident companies17%
Active Interest (interest arising from the ordinary activities or closely related to the ordinary activities)Exempt (1)
Passive Interest (other than active interest, such as interest from bonds or bank deposits)30% (2)
Rental income (reduced by 25%)3%

Notes:

  1. Active interest is subject to Income Tax / Corporation Tax.
  2. Interest income earned by individuals from Cyprus government savings bonds and development bonds is subject to SDC at the rate 3% (instead of 30%). Also, in the case where the total income of an individual (including interest) does not exceed €12.000 in a tax year, then the rate on interest income is reduced to 3% (instead of 30%).

COMPANIES

Company Tax Residence

A company is considered tax resident in Cyprus if its management and control is exercised in Cyprus. There is no definition in the income tax law as to the meaning of the term “management and control”. It is understood that the Cyprus Tax Authorities follow the definition of the “place of effective management” as per the OECD model convention.

Place of effective management

Generally, as per the OECD, the place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made. All relevant facts and circumstances must be examined to determine the place of effective management.

Factors indicating place of effective management

When the Cyprus Tax Authorities examine the place of effective management of a company, they mainly look into the factors below.

  • Whether the majority of the Board of Directors meetings take place in Cyprus;
  • Whether the Board of Directors’ minutes are prepared and kept in Cyprus;
  • Whether the majority of the Board of Directors are tax residents in Cyprus;
  • Whether the shareholders’ meetings take place in Cyprus;
  • Whether the company issued any General Powers of Attorney;
  • Whether the corporate seal and all statutory books and records maintained in Cyprus;
  • Whether the corporate filing and reporting functions performed by representatives located in Cyprus;
  • Whether the accounting records of the company are kept in Cyprus;
  • Whether the agreements relating to the company’s business or assets executed or signed in Cyprus;
  • Whether Cypriot laws govern the legal status of the company;
  • Whether the Board of Directors exercise control and make key management and commercial decisions necessary for the company’s operations and general policies in Cyprus;

Exemptions

The following items are exempt from Income Tax (i.e. are received tax free):

  • Passive interest income from bank deposits or bonds;
  • Profit from the sale of securities;
  • Dividend income, unless the dividend is allowed as a tax deduction in the jurisdiction of the dividend-paying company;
  • Foreign exchange gains (realized and/or unrealized), unless they result from trading in currencies and/or currency derivatives
  • Profits from a permanent establishment situated outside Cyprus, unless the permanent establishment directly or indirectly engages in more than 50% in activities that lead to investment income, and the foreign tax burden is substantially lower than the tax burden in Cyprus;
  • Income of any religious, charitable or educational institution of a public character
  • Income of any co-operative society in respect of transactions between its members
  • Income of any local authority
  • Income of any approved pension scheme or provident fund or any insurance fund
  • Income of any company formed exclusively for the purpose of promoting art, science or sport

Deductions allowed for companies

For the purpose of determining the taxable income of a company, all expenses incurred wholly and exclusively by the company in the production of income supported by invoices and receipts shall be deducted, including:

  • Notional Interest Deduction (NID) effective as of 1 January 2015 (please also visit NID page).
  • Interest in relation to the acquisition of assets used in the business (please also visit ATAD page on interest limitation).
  • Interest incurred in connection with the acquisition of shares in a 100% (directly or indirectly) owned subsidiary company (as of 1.1.2012) is deductible provided that the assets of the subsidiary do not include assets not used in the business (please also visit ATAD page on interest limitation rules).
  • Notional deduction on qualifying income from certain qualifying intangible assets (please also visit IP Regime).
  • Capital expenditure on scientific research
  • Tax amortisation on any expenditure of a capital nature for the acquisition or development of IP (provision applies with effect from 1 July 2016)
  • Wear and tear allowances depending on the nature and type of the asset (See Wear and Tear allowances below)
  • Expenses in relation to rental income
  • Interest expense incurred exclusively in relation to rented property
  • Expenditure on repair of premises, plant, machinery and means of transport
  • Annual contributions paid by an employer to social insurance, General Health System and approved funds on employees’ salaries
  • Employer’s contributions to Medical fund for employees (1% on employee’s remuneration) and Provident/Pension fund for employees (10% on employee’s remuneration)
  • Bad debts
  • Donations or contributions made for educational, cultural or other charitable purposes (unlimited)
  • Expenditure made for maintenance, preservation or restoration of an ancient monument up to €1.200 for building area up to 120m2, up to €1.100 for building area of 121- 1.000 m2 , up to €700 for building area above 1.000 m2.Contributions to a fund approved under regulations for educational purposes and maintenance of an individual attending any university, college, school or other educational institution
  • Entertainment expenses for business purposes (Lower of €17.086 or 1% of the gross income of the business)
  • Eligible infrastructure and technological equipment expenditure in the audiovisual industry (20% for small/ 10% for medium enterprises)

Deductions not allowed for Companies

The following amounts are not deducted for tax purposes

  • 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 a business
  • Remuneration or interest on capital paid or credited by the person carrying on a business
  • Cost of goods taken out of the business for private use
  • Disbursements or expenses not incurred wholly or exclusively for the generation of taxable 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 generation of taxable income
  • Payments of a voluntary nature
  • Taxes
  • Expenses on entertainment, including hospitality of any kind, made in connection with carrying on of a business (in excess of 1% of gross revenue or €17.086, whichever is lower)
  • Expenses relating to the use of a private motor vehicle
  • Interest applicable to the cost of purchase of a 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
  • Salaries for which contributions in respect of provident funds, pension funds, social security and other related funds were not paid within the year due for payment. If paid within two years from the due date, the salaries and the related contributions will be allowed as a tax deductible expense in the year of payment
  • Foreign exchange losses (realized and/or unrealized) are treated as tax neutral (unless they result from trading in currencies and/or currency derivatives).

Annual wear and tear allowances

The following allowances which are given as a percentage on the cost of acquisition are deducted from the chargeable income:

Plant and machinery  %Buildings%
Plant and machinery10Commercial buildings3
Furniture and fittings10Flats3
Industrial carpets10Industrial, hotel and agricultural buildings4
Boreholes10Metallic greenhouse structures10
Machinery and tools used in an agricultural business15Wooden greenhouse structures331/3
Vehicles and means of transportation
Commercial motor vehicles20New Airplanes8
Motor cycles20New Helicopters8
Excavators, tractors, bulldozers, self-propelled loaders and drums for petrol companies25Sailing vessels4,5
Armoured Motor Vehicles20Motor Yachts6
Specialized machinery for the laying of railroads20Used cargo/passenger vesselsOver their useful lives
New passenger vessels   6Ship motor launches12,5
Steamers, tugs and fishing boats     6New cargo vessels8
Other
Televisions and videos10Photovoltaic Systems10
Computer hardware and operating systems20Wind Power Generators10
Application software 331/3Expenditure on application software less than €1.709, is written off in the year of acquisition
Tools in general 331/3

Tax Losses

The tax loss incurred during a tax year and which cannot be set off against other income, is carried forward subject to conditions and set off against the profits of the next five years. For example, tax losses in respect of the year 2015, which were not set off against profits up to the year 2020, may not be carried forward to the year 2021.

No loss carried forward

A loss made by a company cannot be carried forward in the following cases:

A. Change in the ownership

(a) if within any three-year period there is a change in the ownership of the shares of a company and a substantial change in the nature of the business of the company, or

(b) if at any time since the scale of the company’s activities has diminished or has become negligible and before any substantial reactivation of the business there is a change in the ownership of the company’s shares,

No loss which has been incurred before the change in the ownership of the shares of the company can be carried forward in the years subsequent to such change:

Note: A change in the ownership of the shares of the company occurs:

(a) if a person acquires more than half of the ordinary share capital of the company, or
(b) if two or more persons acquire at least 5% of the ordinary share capital of the company so that all together acquire more than half of the ordinary share capital of the company.

There is no change in the ownership of the shares of the company if the change involves a gift made from parent to child, between spouses or relatives up to the second degree of kindred or to a limited company all shareholders of which are and continue to be members of the disposer’s family for a period of five years after such gift.

B. Failure to submit accounts

No amount of loss may be allowed in respect of any year of assessment for which a company delays the submission of accounts for such year for a period exceeding six years from the date when such company ought to have submitted the accounts for the said year.

Group relief losses

Tax losses (or part of them) of a particular year created by a company resident Cyprus can be surrendered (given) to another company resident in Cyprus (Group companies) to be used against its own taxable profits. A loss of a non-resident company cannot be surrendered to a resident company. Vice-versa, a resident company cannot surrender its loss to a non-resident company. There is no requirement for the surrendering company to relieve the loss against its own profits first.

Surrendering and receiving of losses

Set-off of group losses are allowed where the surrendering company and the claimant company are both members of the same group for the whole of the year of assessment. An exception to this rule is where a subsidiary company was formed by its parent company thought the year.

Payments for the surrendering of losses.

A payment for set-off of group losses is not tax deductible for the company paying it or taxable for the company receiving it.

Current year losses

Only current year losses can be surrendered and are to be used only for the corresponding current year profits (i.e. losses of 2010 to offset 2010 profits of another company). No amount of loss brought-forward from previous years should be taken into account. Any member company may surrender its loss to any other member of the group. Only trading losses may be surrendered. On the other hand, the claimant company to which the loss is surrendered, may set off such loss against its total chargeable income (e.g. including income from rents).

Definition of a group

Two companies are deemed to be members of a group if one is the 75% subsidiary of the other or both, each one separately, are 75% subsidiaries of a third company. Group companies may be a mixture of resident or non-resident companies, provided the non-resident company owns at least 75% of a resident company. The holding of 75% relates to:

• voting shares,
• profits available for distribution and
• assets on a winding up.

In determining the 75% holding the following shares are disregarded:

• any shares held as trading stock directly,
• any shares held indirectly (the direct holding being trading stock) and
• any shares held directly or indirectly in a company which is not resident in Cyprus

Interposition of a non- Cyprus tax resident company

As from 1 January 2015 interposition of a non- Cyprus tax resident company(ies) will not affect the eligibility for group relief as long as such company(ies) is/are tax resident of either an EU country or in a country with which Cyprus has a tax treaty or an exchange of information agreement (bilateral or multilateral).
A partnership or a sole trader transferring a business into a company can carry forward tax losses into the company for future utilisation.

Foreign permanent establishment

Losses of a foreign permanent establishment can be set off with profits of the Cyprus head office. In such case, future profits of an exempt foreign permanent establishment abroad are taxable up to the amount of losses allowed.

Special Contribution for Defence

Special Contribution for Defence is imposed on dividend income, ‘passive’ interest income and rental income earned by companies tax resident in Cyprus and by individuals who are both Cyprus tax resident and Cyprus domiciled. It is charged at the rates shown in the table below:

Type of incomeCompanies
Dividend income from Cyprus resident companiesExempt (1)
Dividend income from non-Cyprus resident companiesExempt (2)
Active Interest (i.e. interest arising from the ordinary activities or closely related to the ordinary activities, such as financing)Exempt (3)
Passive Interest (i.e. other than active interest, such as interest from bank deposits)30%
Rental income (reduced by 25%)3%
  1. Subject to certain anti-avoidance provisions (4-year rule), dividend income received by a Cyprus tax resident company from another Cyprus tax resident company is exempt from SDC. The 4 year rule does not affect Cyprus companies ultimately owned by non residents, or non-domiciled residents.
  2. Dividend income received by a Cyprus tax resident company from a non-Cyprus tax resident company is exempt from SDC. This exemption does not apply if:
  • The company paying the dividend is engaged directly or indirectly in its majority (>50%) in activities which result in investment income AND
  • The foreign tax burden suffered by the foreign company is significantly lower than the tax burden suffered by the Cyprus company (clarified as an effective tax rate of less than 6,25% on the profits distributed).When the exemption does not apply, the dividend income is subject to SDC at the rate of 17%.As from 1 January 2016, Special Contribution does not apply to dividends which are deductible for tax purposes by the paying company. In such cases, dividends are subject to corporation tax and not Special Contribution for Defence.
  1. Active interest is subject to Income Tax / Corporation Tax.

Compliance

SDC due on Cyprus sourced interest and dividends is withheld at source and is payable at the end of the month following the month in which they were paid.

SDC due on foreign sourced dividends, interest and rental income is payable in 6 month intervals on 30 June and 31 December each year.

SDC due on Cyprus sourced rental income where the tenant is a Cyprus company, partnership, the state or local authority, is withheld at source and is payable at the end of the month following the month in which it was withheld. In all other cases the SDC on rental income is payable by the landlord in 6 monthly intervals on 30 June and 31 December each year.

Foreign taxes paid can be credited against the SDC liability irrespective of whether there is a double tax agreement with the foreign country.

Deemed dividend distribution

A Cyprus tax resident company is deemed to distribute as a dividend 70% of its after tax accounting profits (as adjusted) two years from the end of the tax year in which the profits were generated. For example, the profits of 2019 are deemed to have been distributed as at 31 Dec 2021.

Such a deemed dividend distribution is reduced with payments of actual dividends paid during the relevant year the profits were generated and the two following years. On the remaining net amount (if any) of deemed dividend 17% Special Contribution for Defence is imposed to the extent that the ultimate direct/ indirect shareholders of the company are individuals who are both Cyprus tax resident and Cyprus domiciled (see Non-Domiciled page).

When an actual dividend is paid after the deemed dividend distribution date, then if Special Contribution for Defence is due on such a dividend, the 17% is imposed only on the amount of the actual dividend paid which exceeds the dividend that was previously deemed to have been distributed and previously suffered Special Contribution for Defence.

Disposal of assets to shareholder at less than market value

When a company disposes of an asset to an individual shareholder or a relative of his/her up to second degree or his/her spouse for a consideration less than its market value, the difference between the consideration and the market value will be deemed to have been distributed as a dividend to the shareholder. This provision, does not apply for assets originally gifted to the company by an individual shareholder or a relative of his up to second degree or his/her spouse.

Company dissolution

The cumulative profits of the last five years prior to the company’s dissolution, which have not been distributed or deemed to have been distributed, will be considered as distributed on dissolution and will be subject to Special Contribution for Defence at the rate of 17%. This provision does not apply in the case of dissolution under a Reorganisation only to the extent that the ultimate shareholders (direct or indirect) are individuals who are both Cyprus tax resident and Cyprus domiciled.

Reduction of capital

In the case of a reduction of capital of a company, any amounts paid or due to physical persons shareholders over and above the previously paid-in equity will be considered as dividends distributed subject to special Defence Contribution at the rate of 17% after deducting any amounts which have been deemed as distributable profits. The redemption of units or shares in a Collective Investment Scheme is not subject to the above provisions.

Social Insurance

An individual who resides in Cyprus and carries out an occupation as an employee or self-employed should be insured under the Social Insurance Law.

Employers and Employees
Social insurance contributions at the rate of 8,3% multiplied by the gross emoluments of the employee are payable by the employee and the employer respectively. The contributions must be paid by the end of the following month to which the contributions relate.The rate of 8,3% applies for both the employer and the employee as from 1 January 2019 and for the next five years. Thereafter, the rate will increase every five years until it reaches 10,7% as from 1 January 2039.

Other contributions paid by the employer based on the employee’s emoluments:
1.2% – Redundancy fund
0.5% – Industrial training fund
8.0% – Holiday fund (if applicable)
2.0% – Social cohesion fund

The amount of all the contributions (except in the case of social cohesion fund) are subject to a lower and a maximum limit which for 2021 is an annual amount of €57.408 (weekly €1.104/monthly €4.784).

Self-employed
The social insurance contributions of self-employed persons are 15,6% subject to a lower and a maximum limit, depending on the profession or trade of the self-employed person. These limits are set on an annual basis. As from 1 January 2019 the contributions of self-employed persons are 15,6% of their income (14,6% for 2014-2018). Thereafter, the rate will increase by 1% every five years until it reaches 19,6% as from 1 January 2039. The amount of the contributions is subject to a lower and a maximum limit, depending on the profession or trade of the Self- Employed Person. These limits are set on an annual basis.

General Health System

Contributions relating to the implementation of the General Health System (GHS) started on 1 March 2019, and the current rates are as per the table below:

Category Applied on Rate 
EmployeesOwn emoluments2,65%
EmployersEmployees’ emoluments2,90%
Self-employedOwn income4,00%
PensionersPension2,65%
Persons holding office*Officers’ Remuneration2,65%
Legal person responsible for the remuneration of persons holding an officeOfficers’ Remuneration2,90%
Persons earning rental, interest, dividend and other incomeRental, Interest, Dividend Income etc2,65%

Where the sum of the contributor’s emoluments, pensions and other income exceeds €180.000 per annum, the contribution is payable only on the amount of €180.000. The €180.000 is calculated cumulatively in the following order:emoluments of employees, self-employed, officers, pensions and finally the dividends/ interest/ rental/ other income.

Capital Gains Tax

Capital Gains Tax (CGT) is imposed on profits from the disposal of:

  • Immovable property situated in Cyprus
  • A sale agreement of immovable property situated in Cyprus
  • Shares of companies whose property consists of, inter alia, immovable property situated in Cyprus
  • Shares of companies which either directly or indirectly participate in a company or companies which own immovable property situated in Cyprus and at least 50% of the market value of such shares is derived from the relevant property

Any trading profits derived from disposal of shares of companies which directly or indirectly own immovable property in Cyprus will be subject to CGT in case such profits are exempt under Income Tax Law.

In the case of disposal of shares of companies which directly or indirectly hold property in Cyprus, the disposal proceeds subject to CGT are restricted to the market value of the immovable property held directly or indirectly by the company whose shares are sold.

In the case of a disposal between related parties, the disposal proceeds subject to CGT are determined by reference to the market value of the property sold on the date of disposal.

Exemptions
The following disposals of immovable property are not subject to CGT:

  • Subject to conditions, land as well as land with buildings, acquired at market value (excluding exchanges, donations, and foreclosures) from unrelated parties in the period 16 July 2015 up to 31 December 2016 will be exempt from CGT upon their future disposal.
  • Transfers arising on death
  • Gifts made from parent to child or between husband and wife or between up to third degree relatives
  • Gifts to a company where the company’s shareholders are members of the donor’s family and the shareholders continue to be members of the family for five years after the day of the transfer
  • Gifts by a family company to its shareholders, provided such property was originally acquired by the company by way of gift. The property must be kept by the donee for at least three years
  • Gifts to charities and the Government
  • Transfers as a result of reorganisations
  • Exchange or disposal of immovable property under the Agricultural Land (Consolidation) Laws
  • Expropriations
  • Exchange of properties, to the extent that the gain made on the exchange has been used to acquire the new property. The gain that is not taxable is deducted from the cost of the new property, i.e. the payment of tax is deferred until the disposal of the new property
  • Donations to a political party

Determination of capital gain for CGT purposes

Liability arises only on gains accruing as from 1 January 1980, i.e. deducted from gross proceeds on the disposal of immovable property are its market value at 1 January 1980, or the costs of acquisition and improvements of the property, if made after 1 January 1980, as adjusted for inflation up to the date of disposal on the basis of the consumer price index in Cyprus.

Expenses that are related to the acquisition and disposal of immovable property are also deducted, subject to certain conditions e.g. interest costs on related loans, transfer fees, legal expenses etc.

Lifetime exemptions for individuals

Individuals are eligible to reduce the capital gain by utilizing the following exemptions:

  • €85.430 on the disposal of private residence (subject to conditions)
  • €25.629 on the disposal of Agricultural land by a farmer
  • €17.086 on any other disposal

The above exemptions are given once only and not for every disposal. There is a maximum of €85.430 if an individual claims a combination of the above.

Annual Levy Payable to the Registrar of Companies

All companies registered with the Cypriot Registrar of Companies are required to pay an annual fee of €350.

  • The annual fee is payable by 30 June of each year
  • For groups of companies, the total amount of the fee payable is capped at €20,000
  • In case the fee is not paid in a timely manner, a charge of 10% is imposed if the payment is made within 2 months of the due date. If the payment is made within 5 months of the due date, an additional charge of 30% is imposed
  • The Registrar of Companies can strike off a company in the event that the company does not pay its annual levy within one year of the due date.