Cyprus Tax Highlights 2024

Principal business entities: These are the public and private limited liability company, partnership and branch of a foreign corporation

Tax year: 1 January till 31 December (calendar year)

Accounting principles / financial statements: Financial statements must be prepared annually in compliance with the IAS/IFRS

Individual taxation

Chargeable income	Tax rate	Accumulated tax
€	%	€
0 – 19.500	Nil	Nil
19.501 – 28.000	20	1.700
28.001 – 36.300	25	3.775
36.301 – 60.000	30	10.885
over 60.000	35
Capital gains tax rate	0% / 20%

Cyprus tax residents are taxed on all chargeable income accrued or derived from all sources in Cyprus and abroad. Non-tax residents are only taxed on their income accrued or derived from sources in Cyprus. Certain types of income are subject to SCD

(See article on the taxation of investment income

Individuals are tax resident in Cyprus if they spend in Cyprus more than 183 days in any one year. With effect as from 1 January 2017 the “60 day rule” in addition to the “183 day rule” for tax resident individuals of Cyprus was voted on 14/07/2017.

The “60-day rule” applies to individuals who in the relevant tax year

reside in Cyprus for one or more periods which add up to at least 60 days and
do not reside in any other State for a period exceeding 183 days in aggregate and
are not tax resident of another state and
have other defined Cyprus ties eg the individual must carry out any business in Cyprus and/or be employed in Cyprus and/or hold an office (director) of a company tax resident in Cyprus at any time in the tax year, provided that such is not terminated before the end of the tax year and
the individual must maintain in the tax year a permanent residential property in Cyprus which is either owned or rented by the individual

Individuals in Cyprus are liable for SCD, if considered “domiciled” in Cyprus. Individuals are domiciled in Cyprus if they have a domicile of origin in Cyprus based on the provisions of the Wills and Succession Law (ie domicile of the father at the time of birth) except in specified cases. Individuals who are resident in Cyprus for at least 17 out of 20 years before the relevant tax year will be deemed to be domiciled in Cyprus (irrespective of domicile of origin and in accordance with the provisions of the Income Tax Law). Taxable income Individual income tax is imposed on income from an office or employment, business profits, rental income, overseas and cost of living allowances, bonuses (annual, performance, profit share, etc.), relocation allowances, payments in kind (such as free accommodation or meals, language lessons provided for a spouse, personal company car, and children’s education), stock options and home leave or holidays paid by your employer. Not all your income is taxable, however, as certain exemptions apply. A resident individual is required to pay general healthcare system (GHS) contributions on various types of income (capped at €180.000,00 per year) at rates of 2,65% or 4,00%. Capital GainsThe same as in the case of corporate organizations. Deductions and allowances Payments to social insurance fund, provident fund, medical fund, National health system fund, pension fund contributions and life insurance premiums, donations to approved charities, contributions to trade unions or professional bodies. Expenditure incurred in the production of taxable income are tax deductible provided they are supported by invoices or relevant receipts.

Compliance requirements

Status Each individual is assessed on a separate basis. Joint assessment of couples is not permitted.

Filing of tax return and payment of due amounts

The deadline for the electronic submission of the tax return is 31 July following the tax year for employees and self-employed individuals who are not required to file audited accounts, and 31 March of the second year following the tax year of assessment for a self-employed person whose return is based on audited accounts. Self-employed individuals with annual turnover of more than €70.000,00 must prepare audited accounts.

Employers are required by law to withhold tax on employment income under the pay-as-you-earn PAYE system. Self employed individuals pay tax through the provisional and self-assessment systems. Any due amounts are payable as at the due date of the tax return.

Penalties

Administrative penalties of €100 are imposed for late tax return or €200 for late submission of information as requested by the tax authorities. A penalty of 5% is imposed in case the tax liability as reported on the tax return is not paid by the statutory deadline or the date provided in the assessment as issued by the Commissioner of Income Tax. If the company fails to settle its tax obligations for the relevant tax year within two months after the payment deadline, an additional 5% penalty is imposed. Interest is charged on late payments according to the official rate of interest as set by the Minister of Finance for each year on the due amount.

Rulings

Rulings are available from the Commissioner of Income Tax on matters of interpretation of the tax law. A fee of €1.000,00 is payable but if an expedite response is required ie within 21 days, the fee is increased to €2.000,00.

Corporate taxation

Resident companies are taxed on worldwide income whereas non-resident companies are taxed only on Cyprus-source income. Branches are taxed in the same way as tax resident companies. Corporate tax is imposed on business profits, interest if considered as business income, rents, royalties or other profits from property and net consideration in respect of trade goodwill. Expenses incurred wholly and exclusively for the production of income and supported by invoices or relevant receipts are tax deductible. Corporation tax rates

	Tax rate %
The tax rate for all companies is	12,50
The tax rate for branches	12,50
Capital gains tax rate	0% / 20%

Residence A company is resident in Cyprus if its management and control is exercised in Cyprus or it is incorporated or registered in Cyprus but its management and control is exercised outside Cyprus, provided the company is not a tax resident in another jurisdiction. Global minimum tax Cyprus is in the process of transposing into its domestic legislation the EU Pillar Two directive that is designed to ensure that a minimum level of taxation of 15% for multinational enterprise groups and large-scale domestic groups within the EU with annual consolidated revenue of at least EUR 750 million.

Taxation of dividends: Domestic and foreign dividend income received by a Cyprus resident Company is exempt from Corporation tax and generally also exempt from the SCD. The exemption does not apply if:

(a) More than 50% of the paying company’s activities result directly or indirectly in investment income and

(b) The foreign tax is significantly lower than the tax rate burden in Cyprus.

Dividends which are tax deductible for the paying company are not exempt from tax in the hands of the recipient (Anti – hybrid rule)

Capital Gains Tax

Capital Gains derived from the sale of shares are tax exempt.

Capital Gains Tax is imposed at the rate of 20% on gains

from the disposal of immovable property situated in Cyprus
From the disposal of shares in companies which own such immovable property excluding shares listed in any recognised stock exchange
From the disposal of shares of companies, which indirectly own immovable property located in Cyprus and at least 50% of the market value of the said shares derive from such immovable property.

Losses

Taxable losses 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.

Taxable losses cannot be carried forward in cases where there is a change in the ownership of the company and significant change in the nature of business, within three years from the year in which the loss was incurred. The current year loss of one company can be set off against the current year profit of another provided the companies are Cyprus tax resident companies of a group. Tax Credit for foreign tax paid

Taxes suffered abroad will be credited against tax payable in Cyprus irrespective of the existence of a double tax treaty. The provisions of the tax treaty will apply if these are more beneficial.

Incentives

The Cyprus IP box provisions have been aligned with the provisions of the OECD BEPS Action 5 report on the nexus approach which allows for a deductible notional expense calculated as 80% X qualifying profits from qualifying IP assets. Qualifying profits are calculated based on the level of research and development activities performed by the taxpayer to develop the qualifying assets.

Qualifying assets include Patents, Copyrighted software and Other intangible assets which are legally protected and cover

utility models, intangible assets that grant protection to plants and genetic material, orphan drug designations, extensions of patent protections
as well as IP assets that are non-obvious, useful and novel and from which the income of a taxpayer does not exceed, in a 5 year period, €7.500.000,00 per annum (€50.000.000,00 for taxpayers forming part of a Group).

Companies tax resident in Cyprus or companies not resident in Cyprus with a permanent establishment in Cyprus can claim a notional interest deduction (NID) in respect of new equity and capital introduced up to 80% of their taxable income on new equity. Qualifying new equity includes share capital and share premium issued and settled.

Special taxation regimes exist for ship owning, ship chartering and ship management companies that own, charter or manage a qualifying ship in a qualifying shipping activity.

Compliance requirements

Tax Year is the calendar year. The accounts of a company may be closed on a date other than 31 December, in which case the taxable profits are apportioned on a time basis to the relevant tax years.

Group of companies Each company must submit its separate tax return. The set off of group losses is possible, provided there is a 75% parent subsidiary relationship, including subsidiaries under the 75% control of a common parent company. Group loss relief is available between resident companies. Group loss relief is available between resident companies and resident companies in another EU member state (subject to conditions)

Filing of tax return and payment of due amounts

The deadline for the electronic submission of the tax return is 31 March of the second year following the tax year of assessment. Companies are required to pay at least 75% of the income as finally determined in two provision payments during the tax year (till 31/7 and till 31/12). If the payments are below the 75% of the final tax as determined there is additional amount of tax equal to 10% of the difference between the final tax and the provisional tax paid.

Penalties

Rulings

Withholding tax

	Residents		Non Residents
	Company	individuals	Company	individuals
	%	%	%	%
Dividends	0	17	0/17	0
Interest	3/17	3/17	0/17	0
Royalties	0	0	0/5/10	0/5/10
Rent payments (except individuals – reduced by 25%)	3	3	3 ¹	3 ¹
GHS	0	2.65 ²	0	2.65 ¹

¹only for property situated in Cyprus
²Applies for Cyprus tax residents for dividends, interest and rent payments and deemed dividends

Dividends

Dividends paid by a resident company to another resident company are not subject to withholding income tax or defence tax (SCD). In the case dividends are paid by a resident company to another resident company after four years from the end of the year in which the profits distributed were earned there is a withholding of 17% tax for SCD and where the ultimate shareholders are individuals and residents and domiciled in Cyprus.

Dividends paid to a resident and domiciled individual are subject to withholding tax of SCD at 17% unless the dividends are paid directly or indirectly from dividends on which the SCD already has been paid.

There is no any withholding tax on dividends paid to a nonresident. However, withholding tax at the rate of 17% applies to dividends paid by a Cyprus tax resident company to companies that are resident in jurisdictions included in annex I of the EU list of noncooperative jurisdictions for tax purposes (black listed companies) or incorporated in a jurisdiction included in the annex I list and not tax resident in any other jurisdiction that is not included in the list and the company receiving the dividend holds directly either alone or jointly with associated companies (which are also resident in a jurisdiction included in annex I or incorporated in such jurisdiction and not tax resident in any other jurisdiction not included in the list) over 50% of the capital or voting rights of the payer company or is entitled to receive more than 50% of the profits of the payer company.

Withholding tax does not apply to dividend payments on shares listed on a recognized stock exchange.

Interest

Interest paid to a resident company or individual is subject to the SCD 17%, withheld at source. A reduced SCD rate of 3%, withheld at source, applies to interest income that is earned from

Cyprus government savings bonds
Development bonds
Provident fund
Cyprus Social Insurance Fund
Cyprus and foreign corporate bonds listed on a recognised stock exchange
Cyprus Government bonds
Cyprus State organisations bonds, or by Cyprus or foreign local authorities listed on a recognised stock exchange

No withholding tax is imposed on interest paid to a nonresident. However, withholding tax at a rate of 17% applies to interest paid by a Cyprus tax resident company to nonresident companies that are resident in jurisdictions included in annex I of the EU list of noncooperative jurisdictions for tax purposes (black listed companies) or incorporated in a jurisdiction included in the annex I list and not tax resident in any other jurisdiction that is not included in the list. The withholding tax does not apply to interest payments on securities listed on a recognized stock exchange and interest payments made by individuals.

Royalties

No withholding tax is imposed on royalties paid to resident individuals or companies. Royalties paid to a non-resident company or individual for the use of rights in Cyprus are subject to withholding tax of 5% on film royalties and 10% on all other royalties. These rates may be reduced under an applicable tax treaty, or the EU interest and royalty directive.

Royalties paid to a non-resident for the use of rights outside Cyprus are exempt from withholding tax. Withholding tax at a rate of 10% applies to royalties paid by a Cyprus tax resident company to companies that are resident in annex I jurisdictions or incorporated in a jurisdiction included in annex I and not tax resident in any other jurisdiction that is not included in the list. The withholding tax does not apply to royalty payments made by individuals.

Rent

Rent paid by a Cyprus resident company or partnership, the government or other local authority to a Cyprus tax resident is subject to the SCD at the rate of 3% on 75% of the gross rental income, withheld at source.

Please don’t hesitate to contact us
Maria Shiaka
Apserou Shiaka & co ltd
[email protected]
tel. 0035722424096