Cyprus

Individual - Significant developments

Last reviewed - 30 June 2022

Cyprus is expanding and updating its double tax treaty (DTT) network. A Protocol to the Cyprus-Germany DTT was signed in 2021 and became effective on 1 January 2022. Additionally, a first-time Cyprus-Jordan DTT was signed on 17 December 2021 and entered into force as of 11 April 2022. Finally, a first-time Cyprus-Netherlands DTT was signed in 2021 and is pending ratification.

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.

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, on 18 March 2021, the House of Representatives of the Republic of Cyprus approved the Law on Administrative Cooperation in the field of Taxation (Law N. 205(I)/2012) implementing the EU Directive 2018/822 (DAC6) on mandatory reporting and exchange of information of cross-border arrangements. The law transposing the DAC6 Directive was published in the Official Gazette of the Cyprus Republic on 31 March 2021 and entered into force immediately with retroactive effect covering transactions from 25 June 2018 and onwards.

On 15 October 2021, the Cyprus Minister of Finance presented the action plan of Cyprus to encourage companies to operate and/or expand their activities in Cyprus, including the following reforms related to tax and social insurance:

  • Expansion of the 50% income tax exemption to new employees with a remuneration of a minimum 55,000 euros (EUR) per annum. The above exemption, already in effect for remuneration over EUR 100,000 per annum, will be extended from 10 to 17 years (covering existing employees who currently enjoy this benefit). Existing employees who earn between EUR 55,000 and EUR 100,000 per annum can benefit for the remaining period of the 17 years.
  • Right to transfer social insurance contributions based on bilateral agreements to come into force.

On 18 March 2022, the Cyprus Parliament voted for the extension of the application of tax incentives relating to investments in innovative Small and Medium-Sized Enterprises (SMEs). More specifically, the deadline has been extended from 30 June 2021 to 30 June 2024. 

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 3.5 million 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.