Taxation of Individuals depends on their resident status.

CyprusTax resident is the individual who is resident more than 183 days in a year of assessment, in the Republic.  Tax Residents are taxed on their worldwide income.

On the other hand Non Tax Residents are liable to tax only on the income that they earned in Cyprus.

The income tax rates that are applied for individuals

Taxable Income

Tax Rate

%

Accumulated Tax

0 – 19.500

NIL

NIL

19.501-28.000

20

1.700

28.001-36.300

25

3.775

 36.301-60.000

30

7.110

Over 60.001 35

 

Tax Exceptions

The following areexempt from income tax:

a) Interest income.

The entire amount but subject to Defense Contribution at 10% if the individual is a Tax Resident. Most of the times are deductible at source. Cyprus Banks deduct the defense before they affect the bank account.

b) Dividends income.TaxIndividuals-Tax

The entire amount but subject to Defense Contribution at 15% if the individual is a Tax Resident.

c) Lump sum received under the shape of bonus on retirement, pension death or as a reimbursement on death or injury.

The entire amount.

d) Capital Sum received from insurance or approved provident fund.

The entire amount.

e) Capital earned from the sale of immovable property.

The entire amount.

f) Profits from a sale of shares of a company that is Cyprus Tax Resident and furthermore owns property in Cyprus.

The entire amount but liable for Capital Gain Tax.

g) Deposits with Housing Finance Corporation

The limit exception is the 40% of the amount deposited which also does not exceed the 25% of the individual’s total income.

h) Compensation from salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus resident employer or to a foreign permanent establishment of a Cyprus resident employer.

The entire amount.

i) Individuals who were not Cyprus residents before the commencement of their employment are allowed after the first year of employment an exception of 20% of their emoluments or €8550 per year whichever is lower. This exception can be applied for 3 years commencing from the 1st of January following the first year of employment.The entire amount.

More detailed see the newsletter announcement regarding the 20% exception.

 

Tax Deductions

The following are deducted from income:

a) Social Insurance, provident fund, medical fund, pension fund contributions and life insurance premiums. -The amount that can be deducted is limited to 1/6 of taxable income.

b) Contributions to trade unions or professional bodies. -The entire amount can be deducted.

c) Donations to approved charity foundations (receipts required). -The entire amount can be deducted.

d) Expenditure incurred for the maintenance of listed buildings for which there has to be either a Preservations order or certificate by the Minister of Interior that the expenses are in respect of preservation work for restoring the building. – The amount that can be deducted depends from the size of the building and can be €512.58 or €854.30 or €939.73 per square meter.

e) Rental income. The following can be deducted for Rental income.

• 20% of gross rental income

• Interest paid for acquisition of the rental income property.

• 3% on the property value less land cost.

Example:

An individual (called A for example purposes) purchases an apartment for €200.000 plus VAT €30.000. Afterwards A rents the apartment for the amount of €900 per month. In addition A has a bank loan of €140.000 related to the purchase of the apartment, and the bank loan accumulated interest for the year is €3.000. Furthermore the developer informs us that the cost of land is estimated to 20% on the purchase price.

Calculation of tax deduction
a) Defense tax due

Loan 3% of the gross rental income less 25%.

€900*12=10800 – (10.800*25%) = 8.100*3% = €243 defense to be paid.

b) Income Tax

Gross Rental Income €900*12 €10.800
Less deductions
20% of Gross Rental Income €2.160
3% Capital Allowance  230.000-(230.000*20%) =184.000*3% €5.520
Interest paid on loan €3.000
(€10680)
Taxable income

120



Note: The taxable income is subject to individual tax rates (see above analysis).If A has no other income in Cyprus the tax to be paid is zero .The only tax that will be paid is the defense tax which is €243.