Tax Exemptions and Deductible Expenses for Individuals

Navigating the tax landscape can be complex, but understanding the available exemptions and deductions can lead to substantial savings. The information provided here details the tax exemptions and deductible expenses in Cyprus for individuals, helping you identify potential benefits for your personal finances.

Exemptions

In Cyprus, specific types of income are exempt from income tax, offering considerable benefits for eligible individuals and businesses. The exemptions include:

  • Dividend Income: Exempt in full, may be subject to Special Contribution for Defence.
  • Passive Interest Income: Exemption applies to the whole amount (may be subject to Special Contribution for Defence). This exemption does not apply to interest earned in the ordinary course of business or closely related to the business operations.
  • Remuneration from Employment in the Republic:
    • For employment that began after 26 July 2022 and until the year 2027, individuals who were employed outside the Republic by a non-Cyprus resident employer for three consecutive years before the start of their employment in the Republic receive a 20% exemption of the remuneration, up to a maximum of €8,550 per annum.
    • Individuals who are not residents of the Republic for at least 15 consecutive years immediately before their employment’s commencement receive a 50% exemption of the remuneration, provided the remuneration exceeds €55,000 annually. This is applicable for employments starting from 1 January 2022.
  • Remuneration for Work Rendered Outside the Republic: Exemption applies to the entire amount for services rendered to a non-resident employer or a permanent establishment outside the Republic for more than 90 days in a tax year.
  • Foreign Exchange (FX) Gains: The whole amount is exempt, excluding FX gains arising from trading in foreign currencies and related derivatives.
  • Gains from the Disposal of Securities: The entire amount is exempt.
  • Gains from Qualifying Loan Restructuring: The exemption may cover the entire amount, subject to conditions that the loan must have been non-performing before or on 31 December 2015.
  • Profits from Permanent Establishment Outside the Republic: The entire amount is exempt if specific conditions are met.
  • Rent from Preserved Buildings: The entire amount is exempt, subject to certain conditions.
  • Retirement and Related Lump Sum Payments: The entire amount is exempt. This includes retiring gratuity, pensions, death gratuity, or compensation for death or injury.
  • Lump Sum Repayment from Life Insurance or Provident Funds: The entire amount is exempt.
  • Capital Gains from the Disposal of Intellectual Property Rights: The entire amount is exempt.

Deductible Expenses

Certain expenses incurred wholly and exclusively for the production of income are deductible from the taxable income of an individual:

  • Interest on Asset Acquisition for Business Use: The entire amount is deductible.
  • Expenses for Letting of Buildings: 20% of the gross rental income is deductible.
  • Interest for Building Acquisition for Rental Purposes: The entire amount is deductible.
  • Subscriptions to Trade Unions or Professional Bodies: The entire amount is deductible.
  • Maintenance of Buildings Under Preservation Order: The deduction amount depends on the size of the building.
  • Donations to Approved Charitable Organisations: The entire amount is deductible.
  • Political Party Donations: Deductible up to €50,000, subject to certain conditions.
  • Expenditure for Scientific Research and Development: The entire amount is deductible, including an additional tax deduction of 20% of the relevant expenses for research and development incurred during the years 2022, 2023, and 2024.
  • Investment in Innovative Small/Medium-Sized Businesses: Deductible up to 50% of taxable income, capped at €150,000, subject to conditions. This includes investments made directly, through an investment fund, or an alternative trading platform.
  • Expenditure on Film Infrastructure and Technological Equipment: Deductible up to 20%, subject to conditions.
  • Contributions to social insurance, the General Healthcare System, approved provident and pension funds, medical or other approved funds, and life insurance premiums related to the claimant’s life are deductible up to 1/5 of the net taxable income before these deductions.

Non-Deductible Expenditures

Certain expenditures are not permissible as deductions when computing an individual’s taxable income:

  • Expenditures not solely and exclusively incurred in the generation of taxable income will not qualify as deductible.
  • Any expenditure lacking proper documentation is not acceptable for tax deduction purposes.
  • Entertainment expenses for business purposes are limited to a deductible amount not exceeding 1% of the gross income or €17,086, whichever is lesser.
  • Expenses related to the use of private motor vehicles are entirely non-deductible.
  • Interest on loans for acquiring private motor vehicles or assets not used in the business is non-deductible for a period of seven years from the acquisition date.
  • Wages and salaries become deductible in the tax year they are paid, provided social insurance and other relevant contributions are settled within two years of their due date.
  • Financial benefits or loans provided to company directors or individual shareholders (including their spouses or relatives up to the second degree) are considered taxable income, calculated at a rate of 9% per annum on the received amount.

Benefits and Losses

  • Employment benefits, either in cash or kind, provided to an employee or their family members, are subject to income tax. The Tax Department offers detailed guidelines available on their website.
  • Business owners can carry forward tax losses for the next five years, offsetting them against future taxable income.
  • Losses from foreign permanent establishments can be offset against taxable profits earned in the Republic within the same year. However, any recovered profits from these establishments will be taxable up to the amount of the offset losses.

Depreciation Allowances

Business owners are entitled to reduce their taxable income by claiming depreciation allowances for the assets employed in their business operations.

Tax Credit for International Taxation

Foreign tax paid on income that is also subject to income tax in Cyprus may be credited against the income tax due here, with or without the existence of a tax treaty.

Disclaimer

Please note that the information provided here is for general guidance only and does not constitute professional tax advice. Tax laws and interpretations are subject to change, and individual circumstances can significantly affect tax obligations and benefits.

Contact Us

For personalized tax advice tailored to your specific situation, we strongly recommend consulting with a qualified tax professional. Our team is equipped with the expertise to navigate the intricacies of Cyprus tax law and provide you with customized solutions. Contact us to ensure that you are making the most informed decisions for your tax-related matters.

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