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Income Tax For Individuals

Resident in Cyprus
On 14 July 2017, the House of Representatives approved an amendment to the Income Tax Law that extends the definition of “Cyprus tax resident individual”. The amendment applies retroactively as from 1 January 2017. According to the legislation, an individual who spends more than 183 days in Cyprus is considered Cyprus tax resident. With the amendment to the legislation and the introduction of a new “60-day” rule, an individual who does not satisfy the above condition may still be deemed to be Cyprus tax resident if he/she:

 

does not spend more than a total of 183 days in any other country within a tax year and is not a tax resident of another country within the same tax year,and the following three conditions are met:

i. The individual must remain in Cyprus for at least 60 days in the tax year

ii. The individual must carry on a business in Cyprus, be employed in Cyprus or hold an office in a Cyprus tax resident person at any time during the tax year

 

Tax rates
The tax rates that apply to individuals for the tax year 2017 are as follows:

 
YEAR 2017      
       
Taxable Income Tax rate Amount of tax Cumulative tax
  %
           
0 - 19.500 0 0 0
19.501 - 28.000 20  1.700 1.700
28.001 - 36.300 25 2.075 3.775
36.001 - 60.000 30 7.110 10.885
60.001 and above 35    

Exempt income
The main exemptions are as follows:
  • Dividends received are exempt from income tax (see also for Special Contributions for Defence Law provisions).
  • Profits of a permanent establishment situated outside Cyprus of a Cypriot resident are exempt from tax. This exemption does not apply if the permanent establishment engages more than 50% in activities, which lead to investment income, and the foreign tax burden on the income of the permanent establishment is substantially lower than the tax burden of the Cypriot resident in the Republic.
  • The profit from the disposal of securities is exempt from tax irrespective of whether it is of capital or trading nature. Securities include shares, government stocks, debentures, bonds, founder’s shares and rights thereof.
  • The whole of interest income. Interest income, which is received in the ordinary course of a business, including interest closely connected to the ordinary course of business, is not exempt but is included in the taxable income of the business (see also, special contribution for defence law provisions in relevant section above).
  • The lower of 20% of the remuneration from an employment, which is exercised in the Republic by a person who was a non-resident before the commencement of his employment, and €8.550. This exemption applies for a period of three years from 1 January of the year following the year in which the employment commenced.
  • The 50% of the remuneration from an employment, which is exercised in the Republic by a person who was a non-resident before the commencement of his employment. This exemption applies for a period of five years starting from the first year or employment provided that the above income of the employee exceeds €100.000 per annum.
  • The emoluments from salaried services performed abroad for an aggregate period in the tax year exceeding 90 days, for a non resident employer.
  • Rental Income which derives from preserved buildings (under certain conditions).
  • The lump sum amount received from insurance schemes or any approved provident fund as repayment.
  • Income from scholarship or other educational endowment.
Deductions
The following are deducted from income:

 
  • Interest relating to the acquisition of fixed assets used in the business.As of 01/01/2012, interest incurred in connection with the acquisition of shares in a 100% owned subsidiary company is deductible, provided that the assets of the subsidiary do not include assets not used in the business.
  • Expenses for letting of buildings - 20% of the rental income.
  • Interest in respect to the acquisition of a building for rental purposes.
  • Subscriptions to trade unions or professional bodies.
  • Expenditure for the maintenance of buildings under preservation order up to €700, €1.100 or €1.200 per sq. m. (depending on the size of the building).
  • Donations to approved charitable organisation (with receipts).
  • Special Contribution of employees in the private sector.
  • The 80% of profits derives from the disposal/exploitation of intellectual property rights.
  • Expenditure incurred for the acquisition of shares in an innovative business.
Non-deductible expenses
The following expenses are not tax deductible:
  • Business entertainment expenses including hospitality expenses of any kind which are incurred for the purpose of the business of any amount in excess of 1% of the gross income or €17.086 (whichever is the lower).
  • Private motor vehicle expenses.
  • Immovable property tax.
  • Professional tax.
  • Interest payable or deemed to be payable in relation to the acquisition of a private motor vehicle, irrespective of whether it is used in the business or not, or other asset not used in the business. This restriction is lifted after 7 years the relevant asset.
  • Expenditure which is not supported by invoices and relevant receipts or other supporting documentation as required by the relevant Regulations.
  • The amount of wages and salaries relating to services offered within the tax year on which contributions to the Social Insurance Fund, Redundancy Fund, Human Resource Development Fund, Social Cohesion Fund, Pension Fund and Provident Fund have not been paid in the year in which they were due. In case those contributions are paid in full within 2 years following the due date, such wages and salaries will be tax deductible in the tax year in which they are paid.
Loans or financial facilities provided to company directors or individual shareholders
Any amount provided as financial assistance or as a loan to a company's director, or to a company's individual shareholder, or to his/her spouse, or to any relative up to a second degree is considered as a monthly benefit equal to 9% p.a. calculated on the above amount. Such benefit will be included in the individual's income and will be subject to Income Tax.

Losses
Carry forward of losses
Losses are carried forward for relief over the next 5 year period. Tax losses from tax year 2008 can be transferred and used until 2013. Any losses up to the tax year 2007 will not be available to offset 2013 profits.

Where a person, including a partnership, converts his business into a limited liability company, any unrelieved losses can be transferred to the new company with the restriction of 5 year period.

Loss of a permanent establishment outside the Republic
Losses arising from a permanent establishment maintained outside the Republic can be offset against profits arising in the Republic. However, when a profit arises from such a permanent establishment, an amount equal to the losses that have been utilised in the past against profits arising in the Republic will be included in the taxable income.

Personal Allowances
The following are deductible from income:

 
Social insurance contributions, contributions to approved provident and pension funds, contributions to medical or other approved funds as well as insurance premiums in respect of the life of the claimant The whole amount up to 1/6 of the taxable income before the deduction of these allowances

 

  • Donations to approved Charities, with Receipts.
  • Subscriptionns to professional associations.
  • Special Contribution for employees, self-employed and pensioners.
  • The annual life insurance premium is restricted to 7% of the insured amount
  • Life insurance policies, in respect to the life of the claimant’s spouse, which were in existence up to the 31 December 2002 and for which the claimant was receiving a tax allowance, will continue to be deductible by the claimant.
  • In the event of cancellation of a life insurance contract within 6 years from the date it was entered into, part of the life insurance premiums already given as a allowance will be taxable as follows:

- cancellation within 3 years 30%
- cancellation between 4 to 6 years 20%

Tax credit for foreign tax paid

Any tax suffered abroad on income subject to income tax will be credited against any income tax payable on such income irrespective of the existence of a double tax treaty.

Foreign Pensions
Individuals receiving foreign pension can choose to be taxed on the following way:

  • Up to € 3.420 0%.
  • Over € 3.420 5%.