Tax laws Cyprus
Cyprus has a well-developed and competitive tax system, which makes it an attractive location for businesses and individuals. The tax laws are governed by both local regulations and international agreements, including double taxation treaties with various countries. Here's an overview of the key tax laws in Cyprus:
1. Corporate Income Tax
Cyprus has one of the lowest corporate tax rates in the European Union, making it an attractive location for international businesses.
- Corporate Tax Rate: The standard corporate income tax rate is 12.5% on the profits of companies.
- International Business Companies: Cyprus offers favorable tax treatment for international businesses, especially in areas such as intellectual property (IP) and holding companies.
2. Personal Income Tax
Personal income tax in Cyprus is progressive, with rates depending on the level of income earned by an individual. The tax system applies to both residents and non-residents.
Tax Rates for Individuals (as of 2025):
- Up to EUR 19,500: 0%
- EUR 19,501 to EUR 28,000: 20%
- EUR 28,001 to EUR 36,300: 25%
- EUR 36,301 to EUR 60,000: 30%
- Above EUR 60,000: 35%
Tax Exemptions:
- Pensions: Pension income is partially or fully exempt depending on the amount and source of the pension.
- Foreign Income: Cyprus residents benefit from exemptions on foreign income in certain cases, particularly from dividends and interest earned from foreign sources.
- Personal Allowances: Taxpayers can benefit from various personal allowances, such as for dependents and contributions to social insurance.
3. Value Added Tax (VAT)
Cyprus follows the EU VAT system, with various VAT rates depending on the goods or services provided.
- Standard VAT Rate: 19%
- Reduced VAT Rates:
- 5% on basic goods and services such as food, medicine, and books.
- 9% on certain tourism and hospitality services (e.g., restaurant meals and hotel accommodation).
- Exemptions: Certain goods and services are exempt from VAT, such as healthcare, education, and financial services.
4. Capital Gains Tax
Cyprus levies a Capital Gains Tax (CGT) on the sale of immovable property located in Cyprus or shares in companies that own such property.
- Capital Gains Tax Rate: 20% on the profit from the sale of property or shares.
- Exemptions: There are exemptions for the sale of shares in companies not holding Cyprus real estate and for certain transactions involving primary residences.
5. Social Insurance Contributions
Cyprus has a social security system that provides benefits such as pensions, healthcare, and unemployment support.
- Employee Contribution: 8.3% of gross salary (up to EUR 4,500 monthly).
- Employer Contribution: 8.3% of gross salary (up to EUR 4,500 monthly).
- Self-Employed Contribution: Self-employed individuals must contribute approximately 15.6% on their net income to the social insurance system.
6. Inheritance and Estate Tax
Cyprus abolished inheritance tax in 2000, so there are no taxes on the transfer of wealth through inheritance or gifts.
7. Property Tax
Cyprus previously imposed a property tax, but it was abolished in 2017. There are still certain property-related taxes, including:
- Immovable Property Tax: No longer applicable.
- Stamp Duty: A tax is applied on the transfer of property, with rates varying depending on the value of the property.
8. Dividend Tax
Cyprus has favorable tax laws regarding dividends.
- Dividend Tax: Cyprus applies a 17% withholding tax on dividends paid to residents. However, there are exemptions under the Special Defence Contribution (SDC), which may apply to individuals who are Cyprus tax residents.
9. Special Defence Contribution (SDC)
The SDC is a tax that applies to Cyprus tax residents on certain types of income. This is an important aspect of Cyprus' tax system.
- Dividends: Cyprus tax residents who receive dividends from Cyprus or foreign companies are subject to an SDC of 17%.
- Interest: Interest income earned by Cyprus tax residents from local banks is subject to SDC at a rate of 30%.
- Rental Income: Rental income is subject to SDC at 3%.
10. Double Taxation Treaties (DTT)
Cyprus has signed double taxation treaties with over 60 countries to avoid double taxation and promote international trade. These treaties reduce withholding taxes on cross-border income such as dividends, interest, and royalties, making Cyprus an attractive location for holding companies.
11. Tax Incentives for Investment
Cyprus offers various tax incentives to attract foreign investment:
- IP Box Regime: Companies benefiting from the intellectual property regime can benefit from a reduced tax rate on income derived from the exploitation of IP (e.g., patents, trademarks, and software). The effective tax rate can be as low as 2.5%.
- Investment in R&D: Companies investing in research and development activities may qualify for deductions and incentives, which reduce their taxable income.
12. Tax Filing and Compliance
Both individuals and companies are required to file annual tax returns with the Cyprus Tax Department.
- Corporate Tax Filing: Companies must file an annual tax return within 12 months from the end of their financial year.
- Personal Tax Filing: Individuals must file their annual tax return by April 30 of the following year if they are self-employed or if they have income from multiple sources.
13. Corporate Structure and Holding Companies
Cyprus is a popular location for establishing holding companies due to its favorable tax laws, particularly with respect to:
- No Capital Gains Tax on Sale of Shares: There is no capital gains tax on the sale of shares in a foreign company, making it a prime location for holding companies.
- No Withholding Tax on Dividends: Cyprus does not impose a withholding tax on dividends paid by a Cyprus company to foreign shareholders, provided they are not considered as tax residents of Cyprus.
14. Tax on Wealth and Financial Transactions
Cyprus does not impose a wealth tax or financial transaction tax.
Conclusion
Cyprus offers a competitive and business-friendly tax environment, characterized by low corporate and personal income taxes, favorable treatment of dividends, and a host of tax incentives for international businesses. Its well-established network of double taxation treaties, along with special provisions for holding companies, IP assets, and investment activities, has made Cyprus a popular jurisdiction for businesses and individuals looking for tax efficiency and international expansion.
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