Cyprus Personal Tax Obligations.
All Cyprus tax residents are taxed on their worldwide income, accrued or derived from all sources in Cyprus and abroad. Individuals who are not tax residents of Cyprus are taxed on income accrued or derived from sources in Cyprus.
The tax law on Cyprus Tax Residency provides two options to become a tax-resident in Cyprus, “the 60-day rule” and the “183 days rule”.
“the 60-day rule”
“The 60 days rule” applies to a person who within the relevant tax year (1 January – 31 December) satisfies all the following criteria:
- Does not spend more than 183 days in any other country;
- He / She is not tax-resident in any other country;
- Resides in Cyprus for at least 60 days;
- He / She is employed in Cyprus or holds an office (i.e. a director) in a company which is tax-resident in Cyprus or carries on a business in Cyprus at any time within the tax year, provided that such office or business is not terminated during the specific tax year.
In addition to the above, the applicant must maintain in the tax year a permanent residential property in Cyprus which is either owned or rented.
“The 183 days rule”
The existing “183 days rule” applies to an individual who remains in Cyprus for more than 183 days within the tax year, without any further conditions that must be met.
Other important information
For the calculation of the days of residence in Cyprus (which is the same for both “the 60 days rule” and “the 183 days rule”), the following apply:
- The day of departure from Cyprus counts as a day of residence outside Cyprus;
- The day of arrival in Cyprus counts as a day of residence in Cyprus;
- Arrival and departure from Cyprus on the same day counts as one day of residence in Cyprus;
- Departure and arrival in Cyprus on the same day counts as one day of residence outside Cyprus.
Individuals who are tax-residents in Cyprus are subject to income tax in Cyprus on their worldwide income. It should be noted that individuals who are not tax-residents in Cyprus are liable for income tax in Cyprus only on income arising from sources in Cyprus.
Personal Tax Rates
Foreign pensions are taxed at the rate of 5%. An annual exemption of €3.420 is granted. The taxpayer has the right to choose on an annual basis to be taxed either under the special mode of taxation as mentioned above or under the personal income tax rates.
Cyprus source widow(er)’s pension is taxed at the flat rate of 20% on amounts over €19.500. The taxpayer has the right to choose on an annual basis to be taxed either under the special mode of taxation as mentioned above or under the personal income tax rates.
The following are the most important exemptions from income tax:
The following are allowable deductions:
- Contributions to trade unions or professional bodies;
- Loss of current year and previous years (only in cases of audited financial statements and maximum 5 years old);
- 20% of rent receivable;
- Contributions and donation to approved charities (with receipts);
- Up to 1/5 of the chargeable income for social insurance, Gesy, provident fund, pension fund contributions and life insurance premiums (the allowable annual life insurance premium is restricted to 7% of the insured amount);
- Deductions for expenditure for a building in respect of which there is in force a Preservation Order (depending on the size of building);
- Business entertainment expenses (1% of revenue capped to €17.086).
Social Insurance Contributions & GHS
Employees, as explained in company taxes section, contribute to the Social Insurance Fund 8.3% and to GHS 2.65% of their gross salary which is deducted from their employer before they get paid.
The Social insurance contributions of self-employed persons are 15.6% and the contribution to GHS is 4% of the gross income. The amount of the contributions is subject to a lower and a maximum limit, depending on the profession or trade of the self-employed Person.
Submission of Tax Returns
The deadline for employees to submit to tax authorities their personal return (IR1) is the 30th day of May of the following taxable year and it is being submitted electronically.
The self-employed persons with an annual turnover more than €70.000 are obliged to prepare audited financial statements and they can submit their personal return up to the 31st of March following the next year of the taxable year. For self-employed persons who do not prepare audited financial statements, the deadline is on 31ST of July following the taxable year.
The information in this report is for information purposes only. It is not intended to constitute tax, legal or other professional advice, and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. We accept no responsibility for any errors, omissions or misleading statements in this report, or for any loss which may arise from reliance on materials contained in this report.
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