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Cyprus Individual - Income determination

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Employment income

Employees are taxed on all remuneration, including bonuses and certain employment benefits in kind. A number of important exemptions are available (see Exempt income below).

Employees are not taxed on reimbursements for business travel and business entertainment expenses.

Pensions received from abroad for services rendered outside Cyprus are taxable at the flat rate of 5% on amounts in excess of EUR 3,420 (the first EUR 3,420 is exempt). The taxpayer can, however, on an annual basis, elect to be taxed at the normal tax rates and bands set out in Personal income tax (PIT) in the Taxes on personal income section.

Self-employed income/Business income

Profit arising from self-employment is generally subject to normal PIT bands as set out in Personal income tax (PIT) in the Taxes on personal income section.

For PIT purposes, generally, expenditure wholly and exclusively incurred for the generation of taxable income is deductible against the individual’s income. Such expenditure should be supported by invoices and relevant receipts or other supporting documents.

Profits from a permanent establishment (PE) abroad are exempt from PIT, subject to anti-avoidance rules set out below.

The foreign PE exemption is applicable, unless the below anti-avoidance rule applies:

  • more than 50% of the foreign PE’s activities directly or indirectly result in investment income, and
  • the foreign tax on the income of the foreign PE is significantly lower than the tax burden in Cyprus (i.e. an effective tax rate of less than 6.25%).

Losses from an ‘exempt foreign PE’ are eligible to be offset with other income subject to PIT. In such a case, future profits of an ‘exempt foreign PE’ become taxable in Cyprus up to the amount of losses previously allowed.

With effect from 1 July 2016, taxpayers may irrevocably elect to be subject to PIT on foreign PE profits. In such a case, credit in Cyprus will be available for foreign taxes paid on the foreign PE profits. Transitional rules may be applicable to such a credit where a foreign PE was previously exempt from taxation in Cyprus and subsequently a taxpayer elects to be subject to PIT on foreign PE profits.

Carried interest / performance fee for Alternative Investment Funds (AIFs) and Undertakings for Collective Investment in Transferable Securities (UCITS) fund managers

Certain employees and executives of investment fund management companies or internally managed investment funds may opt for a different mode of personal taxation:

  • AIF Managers authorised under the Alternative Investment Fund Managers Law 56(I)/2013, as amended (hereinafter, the ‘AIFM Law’).
  • Internally managed AIFs authorised under the AIFM Law.
  • UCITS Management Companies authorised under the UCI Law.
  • Internally managed UCITS authorised under the UCI Law.

Subject to conditions, their variable employment remuneration, which is effectively connected to the carried interest of the fund managing entity, may be subject to Cyprus tax at the flat rate of 8%, with a minimum tax liability of EUR 10,000 per annum. This special mode of taxation is available for a period of ten years in total, subject to the annual election of the individual, and is not added to any other income.

See the Tax credits and incentives section in the Corporate tax summary for more information.

Capital gains

Capital gains, other than those relating to Cyprus-located immovable property, are generally not taxed in Cyprus. See Capital gains tax in the Other taxes section for more information.

Dividend and interest income

Dividend and (most types of) interest income received by individuals are exempt from PIT but are subject to SDC, which is imposed at flat rates of 17% on dividend income and 30% on interest income (except for corporate and Cyprus government bonds where 3% rate applies).

We note that, as of 16 July 2015, individuals are subject to SDC only in those cases where they are both Cyprus tax resident and Cyprus domiciled for SDC purposes.

See the Taxes on personal income section for more information.

Rental income

Gross rental income, less a deemed deduction of 20% for buildings (in lieu of actual building repairs and related maintenance expenses), a deduction for capital allowances for buildings, and interest expense for the acquisition of the building/land, is subject to PIT under the normal PIT bands (see the Taxes on personal income section).

Gross rental income (without deductions) is also subject to SDC at an effective rate of 2.25%.

We note that, as of 16 July 2015, individuals are subject to SDC only in those cases where they are both Cyprus tax resident and Cyprus domiciled for SDC purposes.

See the Taxes on personal income section for more information.

Exempt income

The following types of personal income are exempt from tax in Cyprus:

  • As of 16 July 2015, individuals who are not domiciled in Cyprus for SDC purposes are exempt from SDC. Thus, dividend and (most types of) interest income for such individuals are exempt from all taxes in Cyprus. See the Taxes on personal income section for more information.
  • A 50% exemption from PIT is provided, for a maximum period of ten years, on remuneration earned from an employment exercised in Cyprus where the remuneration for such is in excess of EUR 100,000 per annum. This applies for employments commencing as of 1 January 2012, provided that the individual was not a resident of Cyprus before the commencement of the employment. For employments commencing as of 1 January 2015, the exemption does not apply in case the said individual was Cyprus tax resident for three (or more) tax years out of the five tax years immediately prior to the tax year of commencement of the employment or Cyprus tax resident in the tax year preceding commencement of employment. Anti-abuse provisions apply.
  • A 20% exemption from PIT (up to a maximum exemption amount of EUR 8,550 annually) is provided on the remuneration earned from an employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment. This applies for a maximum period of five years starting from 1 January in the year following the year of employment commencement. The exemption is being phased out and will not be available as of 2021. This exemption may not be claimed in addition to the immediately above mentioned 50% exemption for employment income.
  • A 100% exemption from PIT for remuneration earned from an employment exercised outside Cyprus for a period of more than 90 days (in aggregate) in a tax year for a non-Cyprus tax resident employer/foreign PE of a Cyprus tax resident employer.
  • Profits of a foreign PE are fully exempt from PIT under certain conditions. See the Income determination section for more information.
  • Profits from disposals of corporate 'titles' are unconditionally exempt from PIT. 'Titles' is defined as shares, bonds, debentures, founders’ shares, and other titles of companies or other legal persons incorporated in Cyprus or abroad and options thereon. According to a circular issued by the Cyprus tax authorities (CTA), the term includes, inter alia, futures/forwards on titles, short positions on titles, swaps on titles, depositary receipts on titles, repos on titles, units in open or close collective investment schemes (CISs), international collective investment schemes (ICISs), UCITS, investment trusts and funds, mutual funds, real estate investment trusts (REITs), and units in stock exchange indices on titles.
  • Social grants. The following three categories of grants are exempt from PIT:
    • A grant is provided to families for every child receiving full-time higher education in Cyprus or abroad (subject to family income criteria and certain restrictions).
    • An annual grant for each dependent child of a family resident in Cyprus (subject to family income criteria and certain restrictions).
    • An annual grant for blind persons.
  • A 20% exemption from PIT of the gross rental income for rental of buildings (i.e. not for land) in lieu of actual expenses for repairs and maintenance etc.
  • Lump sum received by way of retiring gratuity, commutation of pension, or compensation for death or injuries is fully exempt from PIT.
  • Capital sums accruing to individuals from any payment to approved funds (e.g. provident funds) are fully exempt from PIT.
  • The lower of 35% of the eligible expenditure and 50% of the taxable income exemption from PIT is provided for profits from the production of films, series, and other related audiovisual programs. Any restriction may be carried forward for five years (see the Income determination section in the Corporate tax summary for more information).

Last Reviewed - 05 February 2020

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