Sign up for our newsletter
Useful Cyprus Information Cyprus Government Websites Currency Converter Cyprus Property News Limassol Marina CyprusNewsReport.comCyprus Tax - Cyprus Tax Facts 2012
Information for Cyprus Expats on the Cyprus Tax laws for 2012
Personal Tax
Resident individuals are subject to tax on their worldwide income. In order to be classified as a resident individual, one has to reside in the Republic of Cyprus for a period or periods exceeding in total 183 days in a calendar year.
Tax is charged on income accruing in, derived from or received in Cyprus by any person in respect of gains or profits from any trade, business, profession or vocation or from any office or employment, including pensions, or from dividends, interest, rents, annuities and royalties. In the case of salaried individuals “income” also includes benefits in-kind.
Non-resident individuals are taxed on their Cyprus-source income only. Special provisions and benefits are applicable to expatriate employees.
The personal tax rates applicable are as follows:
INCOME TAX
2011 Tax Rates
Taxable Income
EUR 0 – 19,500 = 0%
EUR 19,501 – 28,000 = 20%
EUR 28,001 – 36,300 = 25%
EUR 36,301 – 59,999 = 30%
EUR 60,000 and above = 35%
20% of the annual remuneration from an office or employment exercised in Cyprus or EUR 8,550 (whichever is lower) is
exempt from income tax for an individual whose residence was outside Cyprus before the commencement of the office or employment. The exemption is applicable for a period of three years from January 1 following the year of commencement of the office or employment.
With effect from 1 January 2012, a 50% exemption applies to salary income of a non-resident individual who takes up residence in Cyprus to work for a resident employer. The exemption applies for a period of 5 years starting from the first year of employment provided that the annual income of the employee exceeds EUR 100,000.
Corporation Tax
Resident companies are taxed on their worldwide income at the rate of 10% on their net profits. For a company to qualify for the status of a resident company, its management and control has to be exercised in Cyprus.
Income tax is assessed in the year, in which the income is earned on a current year basis. All expenses incurred wholly and exclusively for the production of the income are allowed for tax purposes if supported by relevant documents (invoices, receipts etc.). Other deductions permitted by the law include annual depreciation, other allowances, as well as special tax incentives. The depreciation is calculated on a straight-line basis and the depreciation period depends on the type of the capital asset. Losses may be set-off against income from other sources and any balance left is allowed to be carried forward for an indefinite period.
Certain types of income are exempt from corporation tax making Cyprus a very attractive destination for foreign investors, namely:
• The full amount of dividends received;
• The full amount of interest received, given that such interest is neither derived in the ordinary course of business nor is closely connected to the ordinary course of business of the company;
• Gains from the sale of securities, whereas the term “securities” is deemed to include:
- Ordinary shares, founder’s shares, preference shares, options on titles, debentures, bonds, short positions on titles, futures/forwards on titles, swaps on titles, depositary receipts on titles (i.e. ARDs and GDRs);
- Claim rights on bonds and debentures, excluding the right on interest of such products, index participations (provided that they are related to securities), repurchase agreements (“Repos”) on titles;
- Participations in companies; and
- Units in open–ended or closed–ended collective investment schemes.
Local partnerships are not considered legal entities and are not subject to tax; instead, each partner (whether individual or company) is taxed on the profits of the partnership apportioned to them.
Trusts are not taxed per se, but nevertheless the trustees are taxed on behalf of the beneficiaries.
Cyprus operates a system of self-assessment for corporation tax. Companies have to pay provisional tax on the current year’s taxable profit in three equal instalments on August 1, September 30 and December 31. An electronic filing system of tax returns has been introduced.
Following the last amendments in the Companies Law, Cap 113, all companies registered in Cyprus will have to pay an annual fee of EURO 350.For 2011, the annual fee is due by 31 December 2011. For each year thereafter, the companies will be obliged to pay the fee not later than June 30 of the current year. Dormant companies are exempted from the obligation to pay the fee provided that the relevant certificate is submitted to the Registrar of Companies before June 30. The company will be considered dormant for the year in which the certificate is issued.
Considered as dormant:
• Companies with neither assets nor turnover;
• Companies with assets but no turnover;
• Companies with turnover but no assets;
• Companies with assets located within Cyprus, but in the unregulated areas of the Republic.
A company incorporated in Cyprus is taxed on its worldwide income. Nevertheless, if a bilateral tax agreement is in existence with the country from where the income is derived, double taxation will be avoided. Even if there is no such agreement, a unilateral tax relief may be granted under the national tax provisions in Cyprus.
Special Contribution To The Defence Fund
Special defence contribution is levied on the following types of income:
• 15% on interest received, where such interest does not derive in the ordinary course of business of the company nor is closely connected with the ordinary course of business of the company;
• 3% out of 75% of the gross rental income;
• 20% on dividends received from abroad. Resident companies receiving dividends from abroad are generally exempt, unless the paying company is engaged (directly or indirectly) by more than 50% in the activities leading to investment income and the tax obligation of the foreign company is substantially lower than that of the Cyprus company (i.e. less than 5%).
• 20% on dividends paid. This provision does not apply to the payment of dividends to a Cyprus company or to a non-resident shareholder.
• 20% on deemed dividends;
- Deemed dividend distribution is forced on 70% of the profits of the company/mutual funds that remain undistributed for a period of 2 years from the end of the tax year in which they have arisen;
- The undistributed accumulated profits of the last 5 years of a company/mutual fund prior to its dissolution or liquidation (2 years for companies under voluntary dissolution or liquidation) are deemed to be distributed at the time of dissolution/liquidation (reorganisation schemes are exempt);
- Tax is also withheld on any amounts paid or due to the shareholders of companies which proceeded into a reduction of capital up to the amount of the share capital which was initially paid by the shareholders (redemption of units or participations in mutual funds is not considered a reduction of capital).
The aforementioned provisions do not apply to non-residents shareholders.
• 3% on interest income received by a resident individual from Cyprus government savings bonds and development stocks
• 3% on interest accruing from a provident fund or the Social Insurance Fund;
• Individuals with an annual income, including interest, of up to EURO 12,000 may request a refund of the tax withheld on interest in excess of 3%.
The provisions on special defence contribution contain an obvious tax incentive for non-resident shareholders aiming at attracting international businesses to base their holding companies in Cyprus. This will enable the investors to pull out dividends from their ventures across the continent using the low withholding tax rates in the DTTs that Cyprus has signed and then to re-distribute those profits to its shareholders with zero withholding tax.
When the income that is subject to special defence contribution has been already taxed in the source country, the foreign tax may be used as a tax credit. The existence of a DTT between the two countries in question is not required.
Capital Gains Tax
Gains from the sale of shares listed in any recognised stock exchange are excluded from the scope of the capital gains tax.
The gain is calculated as the difference between the proceeds and the original acquisition cost of the property, adjusted for inflation.
The tax liability for capital gains on disposal of immovable property is subject to certain exceptions:
• Transfer by reason of death;
• Gifts among spouses or relatives up to the 3rd degree;
• Gifts to companies by members of the family of the shareholders (it is obligatory that the such relationship is present for at least 5 years);
• Gift by a family-owned company to its shareholders given that the donated property was also acquired by the company by way of a gift (the property should remain in the possession of the shareholders for at least 3 years);
• Donation for charity, to charitable organisations or to the Republic;
• Sale or exchange of property consistent with the provisions of the Agricultural Land (Consolidation) Laws;
• Exchange of properties of equal value;
• Expropriation of property;
• Profit from the transfer of ownership of property or shares where a company reorganisation has taken place;
• Transfer of immovable property between spouses after the issue of a divorce, which constitute a settlement of property between them.
Additionally, there are certain life-time exemptions available to individuals on the following amounts relating to the disposal of immovable property:
• For principal dwelling residence used by the owner exclusively for own habitation for a period of at least 5 years - €85,430.07
• For agricultural property by a farmer - €25,629.02
• Any other disposal or disposals of immovable property - €17,086.01
You may view the full edition of Cyprus Tax Facts here
Eurofast Taxand website
CYPRUS INFORMATION BUSINESS DIRECTORY CYPRUS PROPERTY LISTINGS TRANSLATIONS
PROPERTY FINDERS SERVICE MARKETPLACE CLASSIFIEDS UK BUSINESS DIRECTORY
FEATURED ARTICLES PRESS RELEASE SERVICE FEATURED BUSINESSES UK BORN CYPRIOTS
cyprus expats tax inland revenue corporate personal business revenue laws
