Cyprus Tax System: How It works
Embarking on a journey through the Cyprus tax system can feel like navigating an ancient maze, minus the minotaur but filled with its own set of challenges. Worry Not! We’ve got your back in this!
Whether you’re a sun-chasing expat or a local business owner, understanding the ins and outs of this system is crucial for financial harmony. Let’s demystify the complexities together and uncover the secrets to mastering your taxes in Cyprus.
Let’s dive in!
What Are The Individual Income Taxes, Tax Rates And Tax Classes In Cyprus?
Income tax is money paid to the government from your gross earnings.
The individual income tax rates in Cyprus are as follows:
- 0% for taxable income up to €19,500
- 20% for taxable income between €19,501 and €28,000
- 25% for taxable income between €28,001 and €36,300
- 30% for taxable income between €36,301 and €60,000
- 35% for taxable income over €60,000.
In Cyprus, the tax classes for individuals are based on their residency status.
Cyprus-tax residents are taxed on their income worldwide at these rates. “A person is resident in Cyprus if he or she is in Cyprus for more than 183 days a year” (Andreas Neocleous & Co, 2003).
Non-tax residents are taxed only on income from Cypriot establishments or any business conducted in the Republic.
What Is Progressive Tax In Cyprus And How To Calculate Your Earnings After Paying The Taxes?
Cyprus has a progressive tax system. A progressive tax is a tax system in which tax rates increase as income levels rise.
To calculate your earnings after paying your taxes, use the steps listed below:
- Calculate Your Gross Taxable Income: This is your total income from all sources before any deductions.
- Apply The Applicable Deductions: Several deductions can be made, such as the earned income deduction.
- Calculate The Taxable Basis: Subtract the total deductions from the income after deductions to obtain the taxable basis.
- Determine The Tax Liability: Calculate your national and local taxes due with the help of the taxable basis and the applicable tax rates.
- Calculate Your Net Income: Subtract your total tax due from the gross taxable income to get the net income after paying the tax.
You can also use online tax calculators or consult a tax professional for assistance.
Income Tax Declaration In Cyprus And How To Pay Less Taxes?
In Cyprus, all individuals, including employees, must register online and submit their income tax returns electronically. For employees and pensioners, the deadline is typically 31 July of the following year.
In Cyprus, taxpayers may have deductible taxes based on their circumstances. It’s recommended to take advantage of these deductions,
Some common deductions for individuals include:
- Employment-Related Expenses: Generally, any employment-related expense of the employee, including contributions to trade unions or other employee medical fund contributions, may be deductible for personal income tax purposes.
- Personal Allowances: Charitable contributions to approved charities, life insurance premiums, and individual pension or provident fund contributions are also deductible for personal income tax purposes, subject to specific limitations and conditions.
- Tax Residency And Domicile: Special rules apply to individuals who are tax residents but not domiciled in Cyprus and those who are both tax residents and domiciled in Cyprus, affecting the taxation of their worldwide income and certain types of income.
- Rental Income: A portion of gross rental income (20%) is taxable.
- Social Insurance And Health Contributions: Contributions to social insurance, national health system medical fund (up to a maximum of 1.5% of remuneration), pension, and provident fund contributions (up to a maximum of 10% of remuneration) are also deductible.
- Donations: Donations to approved charitable organizations may be deductible, subject to specific conditions and limitations.
- Interest Expenses: Interest expenses on loans used for purchasing, constructing, or renovating a property in Cyprus are deductible to calculate the taxable rental income.
- Investment Expenditures: Certain investment expenditures, such as expenses related to acquiring intellectual property rights, may be eligible for deductions.
Consider investing in tax-advantaged vehicles such as approved pension or provident funds, which may offer tax benefits.
Other Taxes
It’s important to know about all taxes to fulfill your tax obligations and avoid penalties:
- Church Tax:The Church of Cyprus is exempt from taxes concerning religious activity. It is required to pay taxes only on strictly commercial activities such as the buying, selling, or exchanging property, but not for religious activities.
- Corporate Income Tax: The corporate income tax rate in Cyprus is 12.5% for all companies that are tax residents of Cyprus. All companies that are tax residents of Cyprus are taxed on their income from Cyprus and abroad.
- VAT: It is imposed on the supply of goods and services and the acquisition of goods. The standard VAT rate in Cyprus is 19%. Additionally, there are reduced VAT rates of 9%, 5%, and 3%, as well as a zero VAT rate that applies to specific goods and services.
The reduced rates apply to various items such as accommodation, restaurant services, pharmaceutical products, and goods purchased on international flights.
What Are The Tax Obligations For Seconded Employees?
An employee of a foreign company seconded to Cyprus from abroad for a period exceeding 183 days a year will be treated as a Cypriot resident for tax purposes and liable to Cypriot income tax on his or her worldwide income.
Income from your services provided as a Cypriot tax resident to a foreign permanent establishment of a resident employer or a non-resident employer outside Cyprus will be exempt from Cypriot income tax.
However, the condition for this is that your total stay abroad is, at most 183 days in the tax year.
On top of that, there are tax exemptions available for foreign employees in Cyprus.
As of 26 July 2022, a new tax incentive scheme has been incorporated into the Cyprus Income Tax Law to attract talented professionals worldwide to Cyprus.
The new scheme offers a 50% income tax exemption for up to 17 consecutive years from the tax year in which employment in Cyprus commenced or until the year 2031.
Additionally, a 20% exemption is available for individuals who do not meet the 50% exemption criteria, providing a tax advantage for up to 7 years.
The exemptions do not require the individual to become a Cypriot tax resident nor the employer to be a Cyprus tax resident employer.
Conclusion
As we reach the end of our odyssey through the Cyprus tax system, it’s clear that while the path may be intricate, it’s far from insurmountable. Armed with the right knowledge and tools, you can navigate these waters with the confidence of an ancient mariner.
Remember, in the realm of taxes, knowledge is not just power—it’s also peace of mind. So, chart your course wisely and sail smoothly into your financial future.
Navigate Wisely!
But wait! There’s lot more that you might be interested in following: