Cyprus

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.
• A company to which the AIFM / UCITS Management Company has delegated the portfolio management or risk management activities of the AIF/ UCITS that it manages.

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 17% 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%. However, on 13 September 2023, the CTA issued a Circular pursuant of which rental income from self-catering accommodation that is rented out via online platforms will be treated, subject to certain conditions, as business income (therefore, subject to PIT and exempt from SDC).

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.
• As of 1 January 2022, a new 50% exemption on remuneration applies for 'first employment' exercised in Cyprus by individuals who were not resident in Cyprus for a period of at least 15 consecutive tax years immediately prior to the commencement of their employment in Cyprus. The employment should commence after 1 January 2022, and the remuneration should exceed EUR 55,000 per annum. An employee is considered as exercising 'first employment' in Cyprus if they did not exercise any salaried services (including occasional employment) in Cyprus, either for a local or a foreign employer, for a 15-year consecutive period immediately prior to the aforesaid employee taking up employment in Cyprus. For each individual, the exemption will apply once in their lifetime for a period of 17 years. Subject to certain conditions, individuals whose employment commenced prior to 1 January 2022 may also be eligible to transition into the new 50% exemption.
• Also note, for employments commencing between 1 January 2022 and 29 June 2023, the employee may be eligible to claim 50% exemption subject to similar but not identical conditions. More specifically, employees may be eligible to claim 50% exemption if they were not tax resident in Cyprus immediately prior to the commencement of first employment for a period of ten years, rather than 15 years. Furthermore, 'first employment' refers to employment exercised by the employee in Cyprus at any point in time, rather than the 15-year period immediately preceding the start of employment. Some additional differences apply as well. Subject to certain conditions, individuals whose employment commenced prior to 1 January 2022 may also be eligible to transition into the 50% exemption.
• As of 26 July 2022, a new 20% exemption on remuneration (up to a maximum amount of exemption of EUR 8,550 per annum) applies for first employments commencing after the 26 July 2022 exercised in Cyprus by individuals who immediately prior to the commencement of their employment in Cyprus were not a resident of Cyprus for a period of at least three consecutive tax years and were employed outside of Cyprus by a non-resident employer. For each individual, the exemption will apply for a period of seven years, starting from the tax year following the tax year of commencement of employment. In order to prevent duplication of these new exemptions, individuals granted the above-mentioned 50% exemption will not be eligible for this exemption.
• Previously, for employments commencing until 26 July 2022, 50% and 20% exemptions were available subject to different conditions than the conditions that apply currently. These exemptions were available for a period of ten or five years, respectively. Eligible individuals may continue to claim the exemption even after 26 July 2022 for any remaining period. 
• 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 Authority (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).