Tax in Cyprus

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Tax in Cyprus

Cyprus has very favourable tax rates particularly for the retired expatriate. A person is considered resident for tax purposes in Cyprus if they reside there 183 days or more in each tax year.

Registering as a Taxpayer

On arrival in Cyprus visit the local immigration office to apply for a residence permit. The requirements change often but currently an EU citizen needs four passport size photographs, evidence of their Cyprus residence (rental agreement or contract of sale) and evidence that they have private medical insurance. Non-EU citizens face additional requirements. There are many agents, accountants and lawyers who, for a small fee, can arrange this.

Once you have your Residence Permit (fondly known for many years as your 'Pink Slip' but are now yellow!) you will be in a position to visit your local income tax office to register.

Once this has been achieved UK citizens will be able to complete the necessary UK Inland Revenue forms to have pension income and bank interest from the UK paid gross without the deduction of UK tax.

Citizens of other countries whether EU or non-EU countries should speak with the tax authority of that particular country to ascertain whether they too can obtain gross receipts of income from that country. Much will depend on whether Cyprus has a double taxation agreement with that country and the tax rules of the country in question.

• For information on Cyprus's Double Taxation Agreements see the Cyprus Inland Revenue website

Once a person is eligible to become a taxpayer in Cyprus one of two tax bands is applied to their income.

A working taxpayer the tax rates are as follows:

A retired tax payer has the choice to come under the working tax payers' band as above or the retired tax payers band as follows:

Other income such as bank interest and dividends from shares are exempt from income tax, however they are taxable by way of Cyprus Defence Levy (Special Contribution for Defence).

Each employee, self-employed, or person operating in the private sector receiving a pension, shall pay a special contribution to the Republic in order to strengthen public finances. 

The contribution is a percentage levied on the gross earnings as shown in the table below.

The above special contribution is calculated on the total gross earnings with no restriction or maximum limit on the amount of the levy.
For employees of the private sector, there several exemptions from the special levy.

Income tax is due on 30 April for employed and retired tax payers. If submitting the IR1 through the Internet, using TAXISnet, then the due date is the end of July. Income tax for self employed tax payers is 31 July.

Cyprus Defence Levy

This tax is imposed on certain income earned by Cyprus tax residents.

The standard rate is 15% however should an individual's total income from all sources (that is, pension and bank interest) be less than €12,000 then their defence levy liability would be charged at 3%. If such an individual holds bank deposits in Cyprus which have the 15% defence levy automatically deducted they can apply to have refund.

Foreign Tax already deducted can be credited against the defence tax liability.

The defence levy is due on 30 June and 31 December each year.

Capital Gains Tax

Capital gains tax is imposed on gains from the disposal of immovable property at a rate of 20%. There are certain exemptions and indexation relief allowed.

There is no capital gains tax liability on the gains of investments.

Estate Duty (Inheritance Tax)

Estate Duty was abolished in Cyprus in January 2000.

UK expatriates be aware however that you are likely to be considered as UK domiciled by the UK Inland Revenue even if you have resided outside of the UK for some years. If your estate is worth more than GBP 325,000 (current nil rate band as of April 2009) you may wish to take advice in this regard. (This is a very detailed subject, please contact tax professionals for further information.)

Financial Affairs

Becoming an expatriate brings many changes with regards to your finances. It is advisable to consult with a financial adviser, who is authorised and regulated in Cyprus and who has experience in advising on these matters. 

UK Tax Payers

UK citizens may find that your UK bank allows you to keep the account but often you may not. In this event you will need to find either a UK bank that will allow you to have an account as a non UK resident or the offshore banks, many of which are branches or subsidiaries of the large UK banks, cater for the needs of expatriates.

Certain investments may need reviewing, and perhaps consolidation will be advised to take advantage of certain tax rules. Working expatriates who were contributing to Occupational and Personal Pension Schemes in the UK will not be able to continue contributing as a non-UK taxpayer. Another potentially large tax liability may be UK Inheritance Tax.

Non-UK Tax Payers

Citizens of other countries whether EU countries or non-EU countries may also face the same problems and should speak with the tax authority of that particular country to ascertain the situation.

Written by Vivian Nagel, Hollingsworth International Financial Services Limited
Office 22, Regent House, Bisazza Street, Sliema, Malta SLM 1641
Tel: +356 21 316 298 / Fax: +356 21 316 299 / Mobile: 357 99579149
e-mail Web: www.hollingsworth.eu.com
Copyright © 2005-2012 Vivian Nagel All Rights Reserved

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