Cyprus

Individual - Significant developments

Last reviewed - 30 June 2020

Cyprus is expanding and updating its double tax treaty (DTT) network. New DTTs with Andorra and Saudi Arabia, and an amending protocol with Ukraine, entered into force in 2019 and will be effective for Cyprus as of 1 January 2020. Additionally, new/amended DTTs with Kazakhstan and Egypt have been signed and are awaiting entry into force. The DTT with Kazakhstan has been ratified by both parties and will enter into force upon exchange of ratification notes by both parties.

Cyprus is an early adopter of the Common Reporting Standard (CRS) on automatic exchange of financial account information and also has signed an intergovernmental agreement (IGA) with the United States (US) for the Financial Account Tax Compliance Act (FATCA).

Cyprus signed the Multilateral Convention to Implement Tax Treaty Related Measures (MLI) to Prevent Base Erosion and Profit Shifting (BEPS) on 7 June 2017. Subsequently, Cyprus ratified the MLI on 23 January 2020. The date of 'entry into effect' as regards Cyprus’ application of the MLI for any particular bilateral DTT covered by the MLI depends upon various possible legal processes/options by the other contracting party jurisdiction, but such date cannot be earlier than 1 January 2021 for the purposes of Cyprus’ corporate income tax (CIT), personal income tax (PIT), and Special Contribution for Defence (SDC); exceptionally, an application for a Mutual Agreement Procedure (MAP) as revised under the MLI may be possible for tax periods earlier than 1 January 2021, and possibly as of 1 November 2020 for Cyprus capital gains tax (CGT).

Over the last three years Cyprus has also successfully transposed into its legal and tax framework all European Union (EU) Directives on Administrative Co-operation and Mutual Assistance (i.e. DACs 1-5).

Further, Cyprus is currently in process of implementing the DAC amendment known as DAC6, which provides for mandatory automatic exchange of information in relation to reportable cross-border arrangements (RCBAs), pursuant to Directive 2011/16/EU. The draft Cyprus implementation law was submitted in June 2020 to Cyprus Parliament, and it is expected to be voted upon shortly. The draft law is to be effective as of 1 July 2020. Transitional rules apply where the first step in an RCBA is implemented between 25 June 2018 and 30 June 2020.

The relevant deadlines pertaining to the application of DAC6 are expected to be extended in accordance with guidance to be issued by the European Union.

COVID-19 economic response 

A summary of the economic measures introduced as part of the Cyprus government’s economic response to COVID-19 include the following (more details can be found here).

Direct tax and payroll taxes

In accordance with a new article in CIT Law, a company or an individual that earns rental income from immovable property should be eligible for a tax credit equal to 50% of the voluntary reduction of the monthly rental amount if the said reduction is both not higher than 50% and not lower than 30% of the monthly rental amount. The said company or individual should be eligible for the aforesaid tax credit provided that:

  • The tax credit is for a maximum of three months within tax year 2020, irrespective of the number of months for which a rental reduction has been agreed.
  • The reduction of the rental amount is granted under a written agreement between the landlord and the tenant.
  • The landlord and the tenant are not related persons as defined under CIT Law.
  • The tax credit could be utilised against the total income tax charge of the landlord for tax year 2020.
  • Any refundable tax that relates to the said tax credit does not exceed the amount of tax that has been already paid.

The Cyprus tax authorities have clarified that certain benefits provided by the Cyprus government to support employees and businesses during the COVID-19 pandemic should be exempt from Cyprus income tax due to their extraordinary and temporary nature. More specifically, the said benefits include the special sickness benefit, the special benefit for self-employed, the special unemployment benefit, and the special leave benefit.

The deadline for electronic submission of the 2018 income tax return of ‘self-employed’ individuals whose annual turnover exceeds 70,000 euros (EUR) and who have an obligation to prepare audited financial statements has been extended to 30 June 2020.

The deadline for electronic submission of the 2019 income tax return of ‘self-employed’ individuals whose annual turnover does not exceed EUR 70,000 and who do not have an obligation to prepare audited financial statements has been extended to 30 October 2020. The deadline for the payment of any related tax via self-assessment has been extended to the same date (i.e. 30 October 2020).

The deadline for electronic submission of the 2019 income tax return of 'employees and pensioners' whose annual gross turnover exceeds EUR 19,500 has been extended to 30 October 2020. The deadline for the payment of any related tax via self-assessment has been extended to the same date (i.e. 30 October 2020).

The increase in the special contribution for the General Healthcare System (GHS) is suspended for three months without an impact on the implementation of the second phase of the GHS. The suspension will apply for the months of April, May, and June 2020. For the month of March 2020, the increased contribution rates will apply.

Value-added tax (VAT)

Obligation to pay VAT

There is a temporary suspension of the obligation to pay VAT for reasons of business liquidity, without the imposition of any penalties and interest for the periods ending 29 February 2020, 31 March 2020, and 30 April 2020, until 10 November 2020, provided that the relevant VAT returns are submitted within the prescribed deadlines.

This applies to all taxable persons, established and non-established in Cyprus, with the exception of taxable persons whose activities fall within the prescribed trading codes as specified below:

  •     35111 - Production of electricity.
  •     36001 - Water collection, treatment, and supply.
  •     47111 - Retail sale in non-specialised stores with food, beverages, or tobacco predominating.
  •     47112 - Mini markets.
  •     47211 - Retail sale of fruit and vegetables in specialised stores.
  •     47221 - Retail sale of meat and meat products (including poultry).
  •     47241 - Baking and pre-baked bread rolls.
  •     47242 - Retail sale of cakes, flour confectionery and sugar confectionery in specialised store.
  •     47301 - Retail sale of fuel.
  •     47411 - Retailers of computers, peripheral units, and software in specialised stores.
  •     47621 - Retail sale of newspapers and stationery in specialised stores.
  •     47731 - Retail sale of pharmaceuticals.
  •     61101 - Cyprus Telecommunications Authority.
  •     61201 - Wireless telecommunications activities.
  •     61301 - Satellite telecommunication activities.
  •     61901 - Other telecommunication activities.

VAT prepayment by certain businesses

Taxable persons who have been notified by the Tax Commissioner for amendment of their VAT periods from quarterly to monthly, starting from 30 March 2020 until 30 June 2020, will have an obligation to submit monthly VAT returns by the 27th day following the end of the relative month and make payments within the same deadline as follows:

  • If their activities fall within any of the categories noted in the table below: The full amount of VAT for the relevant period.
  • All other taxpayers: 30% of the VAT due for the relevant period. The 30% prepayment is calculated including any balance remaining from previous periods.

Categories of taxpayers:

  •     35111 - Production of electricity.
  •     36001 - Water collection, treatment, and supply.
  •     47111 - Retail sale in non-specialised stores with food, beverages, or tobacco predominating.
  •     47112 - Mini markets.
  •     47211 - Retail sale of fruit and vegetables in specialised stores.
  •     47221 - Retail sale of meat and meat products (including poultry).
  •     47241 - Baking and pre-baked bread rolls.
  •     47242 - Retail sale of cakes, flour confectionery, and sugar confectionery in specialised store.
  •     47301 - Retail sale of fuel.
  •     47411 - Retailers of computers, peripheral units, and software in specialised stores.
  •     47621 - Retail sale of newspapers and stationery in specialised stores.
  •     47731 - Retail sale of pharmaceuticals.
  •     61101 - Cyprus Telecommunications Authority.
  •     61201 - Wireless telecommunications activities.
  •     61301 - Satellite telecommunication activities.
  •     61901 - Other telecommunication activities.

Custom and excise duties

Postponement of excise duty payment

The postponement relates to the payment of excise duty payable in accordance with the provisions of the Excise Tax Act 2004, for energy products, tobacco products, and alcohol and alcoholic beverages, subject to the terms and conditions. An application should be submitted by the interested parties according to the terms and conditions outlined in the relevant notification together with a bank guarantee for the amount of the excise duty and the additional fee, which will become payable as soon as the postponement period expires.

A person qualifies for the postponement if one's business activity is the production, importation, or acquisition from member states of excise goods, with an annual turnover exceeding EUR 3,500,000 and paying excise duty through the Theseass system.

The Minister of Finance may extend the deadline for payment of the deferred amount up to 60 days if this is considered necessary during a period of crisis.

Relief from import duties and VAT exemption on importation for goods needed to combat the effects of the COVID-19 outbreak

The European Commission has decided, on 3 April 2020, to grant relief from import duties and VAT exemption on importation of goods needed to combat the effects of the COVID-19 pandemic outbreak. The relief applies to importations made from 30 January 2020 to 31 July 2020.

Eligible for the relief and exemption of VAT are the goods imported by or on behalf of state organisations, including state bodies, public bodies, and other bodies governed by public law or by or on behalf of other approved by the competent authority organisations, and which will be used free of charge by the persons affected by or at risk from COVID-19 or involved in combating the COVID-19 outbreak.

The relief is also applicable on goods imported by or on behalf of disaster relief agencies in order to meet their needs during the period of providing their services.