Individuals

Tax Advice & Tax Compliance

Individuals

Tax residency requirement for an individual.

An individual is tax resident in Cyprus if (s)he spends in Cyprus more than 183 days in any one calendar year. With effect as from 1 January 2017, an individual may also be considered tax resident in Cyprus if (s)he satisfies the “60-day rule”.

On 14 July 2017 the Cyprus parliament voted for a Cyprus tax law amendment adding a second test – the “60-day rule” – for the purposes of determining Cyprus tax residency for individuals. This tax law amendment is published in the Official Government Gazette and is effective as from 1 January 2017 (i.e., as from tax year 2017 – the tax year in Cyprus being the calendar year).

Once the “60-day rule” is effective, as from the tax year 2017, an individual will be considered as a tax resident of Cyprus if the individual satisfies either the current “183-day rule” or the new “60-day rule” for the tax year.

The “60-day rule” for Cyprus tax residency applies to individuals who in the relevant tax year:

  • do not reside in any other single state for a period exceeding 183 days in aggregate, and are not tax resident in any other state
  • reside in Cyprus for at least 60 days;

and have other defined Cyprus ties. To satisfy this condition the individual must carry out any business in Cyprus and/or be employed in Cyprus and/or hold an office (director) of a company tax resident in Cyprus at any time in the tax year, provided that such is not terminated during the tax year. Further the individual must maintain in the tax year a permanent residential property in Cyprus which is either owned or rented by the individual. The current “183-day rule” applying where an individual remains in Cyprus for more than 183 days in the tax year, without any further additional conditions/criteria, remains unchanged by the above amendment, such that, as from tax year 2017, an individual will be considered as a tax resident of Cyprus if the individual satisfies either the “183-day rule” or the “60-day rule” for the tax year.

For the purposes of both the “60-day rule” and the “183-day rule” days in and out of Cyprus are calculated as follows:

  • 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 Cyprus tax resident – whether this is determined under the “183-day rule” or under the “60 day rule” – are subject to tax in Cyprus on their worldwide income but certain exemptions apply. Of particular note are:

Exemptions:

The securities exemption.

Profit from the sale of securities – which include, inter alia, shares, bonds, debentures and options thereon – is exempt from taxation in Cyprus except in certain cases where the value of the shares derives from immovable property located in Cyprus.

Employment income exemption for employments exercised in Cyprus

Cyprus income tax – for a period of 10 years – 50% of remuneration from employment exercised in Cyprus by any individual who was not a tax resident of Cyprus before the commencement of the employment provided that the annual remuneration exceeds €100.000.

Determining whether an individual was a tax resident of Cyprus prior to commencement of the employment is subject to conditions.

Employment income exemption for employments exercised outside Cyprus

This exempts from Cyprus income tax income from employment exercised outside Cyprus for more than 90 days in aggregate in the tax year for a non-Cyprus tax resident employer/foreign permanent establishment of a Cyprus tax resident employer.

“183 day rule” tax residents

Individuals who are already considered as Cyprus tax resident under the current “183-day rule” are not impacted by this new amendment. Those individuals who are not considered as Cyprus tax resident under the current “183 day rule” should now assess whether they satisfy the new “60 day rule” which, once effective, will apply as from the current tax year (i.e. tax year 2017, which starts from 1 January 2017). Individuals satisfying the “60 day rule” should then consider what additional steps they need to take. These steps may include, inter alia, registering as a tax resident with the Cyprus Tax Authorities, considering whether the non-domicile rules apply to them, obtaining and maintaining relevant evidence pertaining to the “60 day rule” conditions (such as the maintaining of a permanent residential property in Cyprus) and obtaining a Cyprus tax residency certificate (where required). Conversely individuals who do not satisfy the residency tests should consider what evidence they should maintain in order to support their non-Cyprus tax residency position.

Exa Consulting can assist all impacted individuals in assessing their Cyprus tax position under the new amendment and what relevant action such individuals need to take.

Physical persons are required to submit personal tax returns only when their gross taxable income exceeds €19.500.

A physical person is obliged to submit audited financial statements if his/her annual income from trade/business, rents, dividends interest, royalties or income relating to trading goodwill exceeds €70.000.

Personal tax rates

The following income tax rates apply to individuals:

Chargeable income for the tax year

Tax rate

Accumulated tax

€

%

€

First 19.500

Nil

Nil

From 19.501 – to 28.000

20

1.700

From 28.001 – to 36.300

25

3.775

From 36.301 – to 60.000

30

10.885

Οver 60.000

35

 

Foreign pension income is taxed at the flat rate of 5% on amounts over €3.420. The taxpayer can however on an annual basis elect to be taxed at the normal tax rates and bands set out above.

Cyprus source widow(er)’s pension is taxed at the flat rate of 20% on amounts over €19.500. The taxpayer can however on an annual basis elect to be taxed at the normal tax rates and bands set out above.

Exemptions

The following are exempt from income tax:

Type of Income Exemption
Interest, except for interest arising from the ordinary business activities or closely related to the ordinary business activities of an individual The whole amount (1)
Dividends The whole amount (1)
Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment, exemption applies for a period of 10 years for employments commencing as from 1 January 2012 provided that the annual remuneration exceeds €100.000. For employments commencing as from 1 January 2015 the exemption does not apply in case the said individual was a Cyprus tax resident for 3 (or more) tax years out of the 5 tax years immediately prior to the tax year of commencement of the employment nor in the preceding tax year. In certain cases, it is possible to claim the exemption where income falls below €100.000 per annum. 50% of the remuneration
Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment. For employments commencing during or after 2012 the exemption applies for a period of 5 years starting from the tax year following the year of commencement of the employment with the last eligible tax year being 2020. This exemption may not be claimed in addition to the immediately above mentioned 50% exemption for employment income. 20% of the remuneration with a maximum amount of €8.550 annually
Remuneration 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 whole amount
Profits of a foreign permanent establishment under certain conditions (2) The whole amount
Lump sum received by way of retiring gratuity, commutation of pension or compensation for death or injuries The whole amount
Capital sums accruing to individuals from any payments to approved funds (e.g., provident funds) The whole amount
Profits from the sale of securities (3) The whole amount

Notes:

  1. Such dividend and interest income may be subject to Special Contribution for Defense – refer to the Special Contribution for Defense section.
  1. With effect as from 1 July 2016, taxpayers may elect to tax the profits earned by a foreign permanent establishment, with a tax credit for foreign taxes incurred on those foreign permanent establishment profits. Transitional rules apply in certain cases on the granting of foreign tax credits where a foreign permanent establishment was previously exempt and subsequently a taxpayer elects to be subject to tax on the profits of the foreign permanent establishment.
  1. The term “Securities” is defined as shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated in Cyprus or abroad and options thereon. Circulars have been issued by the Tax Authorities further clarifying what is included in the term Securities. According to the circulars the term includes, among others, options on Securities, short positions on Securities, futures/forwards on Securities, swaps on Securities, depositary receipts on Securities (ADRs, GDRs), rights of claim on bonds and debentures (rights on interest of these instruments are not included), index participations only if they result on Securities, repurchase agreements or Repos on Securities, units in open-end or close-end collective investment schemes. The circulars also clarify specific types of participation in foreign entities which are considered as Securities.

Tax deductions

The following are deducted from income:

Contributions to trade unions or professional bodies The whole amount
Loss of current year and previous years (for individuals required to prepare audited financial statements, current year losses and losses of the previous five years only may be deducted) The whole amount
Rental income 20% of gross rental income
Donations to approved charities (with receipts) The whole amount
Expenditure incurred for the maintenance of a building in respect of which there is in force a Preservation Order Up to €1.200, €1.100 or €700 per square meter (depending on the size of the building)
Social Insurance, National Health System medical fund (maximum 1,5% of remuneration), pension and provident fund contributions (maximum 10% of remuneration) and life insurance premiums (maximum 7% of the insured amount) Up to 1/6 of the chargeable income
Amount invested each tax year as from 1 January 2017 in approved innovative small and medium sized enterprises either directly or indirectly Up to 50% of the taxable income as calculated prior to this deduction (subject to a maximum of €150.000 per year) (1)

Note:

Unused deduction can be carried forward and claimed in the following 5 years, subject to the cap of 50% of taxable income (and overall maximum of €150.000 per year).

For more information and/or advice, feel free to contact us via email at [email protected]

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