Corporate tax in Cyprus and Income tax for tax resident individuals

Cyprus personal taxes and relevant Cyprus tax rates under the Cyprus tax system

An individual who is a tax resident of Cyprus is taxed on income accrued or derived from sources both in and outside Cyprus. An individual who is not a tax resident of Cyprus is taxed only on the income earned from sources in Cyprus.

1.  Cyprus tax rates for individuals under the Cyprus tax system

Taxable income from	Taxable income up to	Taxation rate	Calculated tax	Accumulated 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
36.301	60.000	30	7.110	10.885
60.001	and above	35

The submission of the tax return of an individual in Cyprus regardless of the amount of income becomes mandatory from the year 2020.

2.  Cyprus Corporate tax rates

	%
Cyprus corporation tax rate (up to the year 2012)	10
Cyprus corporation tax rate (from the year 2013)	12,5

3.  Cyprus tax resident Individuals

A person is considered a tax resident of Cyprus when his stay in Cyprus is for more than 183 days in a tax year or if a taxpayer stays in Cyprus for one or more periods equal to at least 60 days if certain conditions are met. (The“60-day rule” applies to individuals who in the relevant tax year 1. do not reside in any other country for a period exceeding 183 days, 2. are not considered tax residents by any other state, and 3. reside in Cyprus for at least 60 days, and 4. The individual must carry out any business in Cyprus and/or be employed in Cyprus and/or hold an office (director) of a company in Cyprus at any time in the tax year, provided that such is not terminated during the tax year, 5. The individual must maintain in the tax year a permanent residential property in Cyprus which is either owned or rented.)

With Covid-19, the Cyprus tax authorities follow the OECD guidance about tax residency of individuals provided that restrictions related to Covid-19 still apply globally.

4.  Tax resident Cyprus Companies

A company is a tax resident in Cyprus if it is managed and controlled from Cyprus. As of 2023, a Cyprus-incorporated company will by default be considered a tax resident of Cyprus provided it is not a tax resident in any other jurisdiction.

A company that is tax resident in Cyprus, is taxed on income accruing or arising from sources both within and outside Cyprus.

Foreign taxes paid can be credited against the Cyprus corporation tax liability.

A company that is not tax resident in Cyprus, is only taxed on income accruing or arising from sources within Cyprus.

With effect as of 1 January 2019 Controlled Foreign Company (CFCs) rules apply, i.e., non-distributed profits of CFCs directly or indirectly controlled by a Cyprus tax resident company may become subject to tax in Cyprus (certain exceptions may apply – refer to paragraph 16).

5.  Exemptions, deductions, and allowances

6.  Major non-allowable expenses for individuals in Cyprus and Cyprus Companies

• Expenses not incurred wholly and exclusively for the production of income
• Expenditure not supported by appropriate documentation
• Business entertainment expenses amount to over 1% of the gross income or €17.086 (whichever is lower)
• Private motor vehicle expenses
• Interest payable or deemed to be payable to the acquisition of a private motor vehicle, irrespective of whether it is used in the business or not, or other assets not used in the business. This restriction ceases after 7 years from the date of acquisition of the relevant asset.
• Interest expense incurred on the direct or indirect acquisition of a subsidiary company of less than 100%.
• Interest expense incurred on the direct or indirect acquisition of a 100% subsidiary company and owns (directly or indirectly) assets not used in the business.
• Interest expense incurred on the direct or indirect acquisition of 100% if an interest limitation rule applies under the EU Anti-Tax Avoidance Directive applicable from 1 January 2019
• Wages and salaries relating to services offered within the tax year on which social insurance and other contributions have not been paid in the year in which they were due. In case the contributions (including any penalties and interest) are paid within 2 years following the due date, such wages and salaries will be tax-deductible in the tax year in which they are paid.
• Any amount provided by a Cyprus company as a loan or financial assistance to a director, to an individual shareholder, to his/her spouse, or any relative up to the second degree is considered a monthly benefit equal to 9% per annum calculated on the amount received. Such benefit is included in the individual’s income subject to Cyprus income tax.

7.  Registration with the Cyprus Tax authorities

Cyprus Companies incorporated or registered or become tax residents of Cyprus are obliged to register with the Cyprus tax authorities and obtain their Cyprus Tax Identification Code within 60 days from that date.

Cyprus companies are also obliged to inform the Cyprus tax authorities of any amendment on their records within 60 days of that amendment.

8.  Application for Cyprus taxpayers’ information by civil servants

The Cyprus tax authorities may ask for information, to impose a tax, from other governmental departments and specifically by local authorities, and semi-governmental authorities excluding the Central Bank of Cyprus and the Department of Supervision and Development of Cooperative Companies.

9.  Keeping accounting books and records in Cyprus

Every Cyprus business, Cyprus individual, Cyprus company, Cyprus partnership, etc derives income from profits or other benefits from any business, or dividends, interest or discounts, or income from leasing, intellectual property rights, patent rights, or other profits arising from the ownership, or Trade goodwill is obliged to:

• Issue receipts and invoices, as specified by relevant Regulations. Invoices should be issued within 30 days from the date of the transaction unless written approval has been obtained by the Commissioner to issue the invoices at a later date. In the case where invoices are not issued within the prescribed deadline, a penalty of €100 per month will be imposed.
• Maintain accounting books and records and prepare financial statements that are audited by accepted auditing standards, by a person who is eligible to act as an auditor of a company per the Companies Law. The Tax Commissioner can exempt a person from this obligation and alternatively request the submission of other information for examination purposes.

An individual who runs a business is exempted from the obligation to keep books and records and prepare audited financial statements if his annual gross income does not exceed the amount of € 70,000 (including income from business).

The books and records must be kept for at least six years.

10. Imposition of surcharges

Late submission of declarations or supporting documents requested by the Cyprus tax department will result in surcharges of €100 or €200 depending on the circumstances.

11. The tax imposed on profits arising from bets of OPAP and National Lottery

20% taxation is imposed on profits in OPAP betting and profits of all national lottery stakes that exceed €5.000

12. Pension

a) Foreign pensions. Income from foreign pensions is taxed at a flat rate of 5% for amounts over €3,420. The taxpayer can annually choose to be taxed with the usual tax rates mentioned above.

b) Widow pension. The taxpayer can elect, on an annual basis, to be taxed either at the normal tax rates and bands or the widow pension to be taxed separately from any other income at the flat rate of 20% on an amount over € 19.500.

14. Cyprus Tax Ruling

Charge €1000

Charge €2000 – expedited

15. Tax credit for foreign tax paid

Tax credit for foreign tax paid on income subject to income tax in Cyprus may be credited against Cyprus income tax payable on such income, irrespective of the existence of a tax treaty.

16. Cyprus’ anti-tax avoidance provisions

The following anti-tax avoidance provisions are provided in the Cyprus Income Tax Law as a result of the adoption of the EU Directives introducing rules against tax avoidance practices that directly affect the functioning of the internal market.

Cyprus Interest Limitation Rule

Excess Borrowing Cost that exceeds 30% of taxable earnings before interest, tax, deductions, and additions in respect of fixed and intangible assets used in the business (EBITDA) are not deductible to calculate the taxable income of a company. By derogation from the rule, the Excess Borrowing Cost is deducted up to the amount of €3.000.000 per fiscal year, per company or Cypriot group, as the case may be.

Rules do not apply to loans concluded before 17 June 2016.

Other exceptions may also apply.

Controlled Foreign Companies (CFCs) in Cyprus and foreign source income

The provisions of the Anti-Tax Avoidance Directive (ATAD) have been transposed into the tax legislation of Cyprus regarding the rules for controlled Foreign Companies in Cyprus. As of 1 January 2019, an entity or permanent establishment whose profits are not subject to tax or are exempt from tax in Cyprus is treated as a controlled foreign company in Cyprus when the following conditions are met:
a) In the case of an entity, the taxpayer alone or together with its affiliated enterprises directly or indirectly owns more than 50% of the voting rights or directly or indirectly owns more than 50% of the capital or is entitled to receive more than 50% of the profits of that entity; and
b) The actual corporate tax paid on its profits by the economic entity or permanent establishment is lower than 50% of the corporate tax that would have been imposed on the entity or permanent establishment under the current corporate tax system in Cyprus.
When an entity or a permanent establishment is treated as a controlled foreign company (CFC), Cyprus will include in the tax base the undistributed income of the entity or the income of the permanent establishment derived from the following categories:

• Interest or any other income generated by financial assets.
• Royalties or any other income generated by intellectual property.
• Dividends and proceeds from the sale of shares.
• Leasing income.
• Income from insurance, banking, and other financial activities.
• Revenue from billing companies that earn sales and service revenue from goods and services bought and sold to affiliates, adding little or no economic value.

The rules for controlled foreign companies (CFCs) are subject to the following exceptions:

1. The taxable income added to the Cyprus company is the undistributed income of the controlled foreign company which results from non-genuine arrangements that have been implemented with the essential purpose of obtaining a tax advantage. An arrangement or series of arrangements is considered non-genuine to the extent that the controlled foreign company would not have owned the assets or assumed the risks that generate all or part of the income if it was not controlled by the Cyprus resident company.

2. The controlled foreign company’s accounting profits:

• do not exceed €750,000 and income from the non-commercial activity does not exceed €75,000, or

• accounting profits do not exceed 10% of its operating expenses for the tax period. Operating expenses do not include the cost outside the country of which the non-resident company is a tax resident and payments to affiliated enterprises.

Any foreign tax paid on the income of the Cyprus Controlled Foreign Company (CFC) is credited against income tax payable in Cyprus.

Cyprus General Anti-Abuse Rules (GAAR)

The Cyprus General Anti-Abuse Rules (GAAR) provide that to calculate the corporate tax liability of a Cyprus company, an arrangement or a series of non-genuine arrangements shall be ignored. Non-genuine arrangements are arrangements that are not put into place for valid commercial reasons that reflect economic reality.

Exit taxation

In certain cases, when a taxpayer moves assets (e.g., from head office to permanent establishment or vice versa) or its tax residence out of Cyprus, the taxpayer shall be subject to tax on an amount equal to the market value of the transferred assets, at the time of exit, less their value for tax purposes.

The taxpayer has the right to defer the payment of the exit tax by paying it in installments over five years.

Cyprus hybrid mismatches

Cyprus hybrid mismatches rules may apply to deny a deduction or tax an income in Cyprus, to the extent that hybrid mismatches result in a double deduction or deduction without inclusion.

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