In a challenging financial climate, it has never been more important to comprehend the system of taxation in the jurisdictions in which you operate. One needs to be fully aware of the entire picture concerning applicable fiscal provisions and the advantages that one jurisdiction may present over another in order to make informed and correct choices about various venues for undertaking international business. In this article I will give a brief overview of Cypriot personal and business income taxation provisions.
Income tax is a tax imposed on financial income generated by an individual. In Cyprus the tax is applicable to:
- A resident’s income generated both inside and outside the Republic; and
- A non-resident’s income that is generated inside the Republic.
A resident is a person who spends more than 183 days in aggregate in the Republic of Cyprus during a tax year.
The tax is applied at the following rates:
Taxable Income in Euros: Rate:
0 – 19.500 0%
19.501 – 28.000 20%
28.001 – 36.300 25%
36.301 – 60.000 30%
60.001 + 35%
Some of the most notable exceptions to income tax are interest income (not including trading profit – ie interest income arising in the ordinary course of business) and dividend income. An exemption of 50% of taxes due on remuneration of an individual who (prior to Cyprus employment) was a non-Cyprus tax resident and who has an income in excess of 100.000 euros per year also applies for a period of five years from 1 January 2012. Moreover 20% of remuneration up to a maximum of 8.550 euros is exempt on the remuneration of an individual who was a non-Cyprus tax resident prior to employment in Cyprus.
Certain payments are permitted to be deducted from income for the purposes of the calculation. These include:
- Subscriptions to trade unions or professional associations;
- Donations to approved charities;
- Rental income of a rented building (up to a 20% limit of rental income);
- Interest on loan to purchase rental properties.
Corporation tax is a tax imposed on taxable profits of a company. In Cyprus, the tax is applicable to:
- A resident company’s income generated both inside and outside the Republic; and
- A non-resident company’s income arising from Cyprus sources.
A resident company is one that is managed and controlled in the Republic of Cyprus. This is irrespective of its place of registration. A company must register with the tax authorities within 60 days of its registration with the Companies Registrar.
The tax is applied at a rate of 10% on corporate income.
Subject to certain conditions, some of the most notable exceptions are interest income (unless interest arises or is related to business activities of the corporate body) and dividend income. Profits on disposal of securities are also exempt as are profits arising from operations of a permanent establishment abroad. Rent of a preserved building is also exempt.
Certain payments may also be deducted from the calculation and these include interest on loans to acquire assets used in the business, donations to approved charities and expenditure for maintenance of preserved building (subject to restrictions).
For the year 1997 and onwards, unutilized tax losses can be carried forward and set off against future profit indefinitely.
Income tax and corporation tax in Cyprus are taxes imposed on the income generated by a person or a business inside the Republic and also imposed on the income generated outside the Republic by those persons/corporations that are deemed to be based in Cyprus. Rates can be said to be generally lower than in other European countries and a number of important exemptions and restrictions can be taken advantage of in respect of each tax.