A Refresher on Cyprus Tax Principles

• Introduction 

 We always find it important for our clients and collaborators to refresh their knowledge on the Cyprus tax system.  We will therefore use our best to touch base with all matters relating to the Cyprus tax system starting with matters such as personal income tax, Social Insurance and Special contribution of defence.  Other topics will be covered in our following articles

• Personal Income Tax 

The basic principle is that all Cyprus tax residents (individuals), are taxed on their worldwide chargeable income (i.e. income accrued or derived from all sources in Cyprus and abroad).  Non-Cyprus tax residents are taxed on certain income sourced in Cyprus.

A person is considered to be Cyprus tax resident in case he/ she spends more than 183 days in Cyprus (60 days if some criteria are met) in one calendar year.

The following income tax rates apply:

• First EUR 19,500 – Nil
• From EUR 19,501 to EUR 28,000 – 20%
• From EUR 28,001 to EUR 36,300 – 25%
• From EUR 36,301 to EUR 60,000 – 30%
• Over EUR 60,000 – 35%

The following types of income are exempt from income tax:

1. Interest (except for interest arising from ordinary business activities).
3. 50% of the remuneration of individuals that were non-residents of Cyprus before the commencement of employment and their annual remuneration exceeds the amount of EUR 100,000 per year. Certain criteria need to be met to qualify for this exemption.
4. 20% of remuneration of individuals that were non-residents of Cyprus before the commencement of employment with a maximum of EUR 8,550 annually. Certain criteria need to be met to qualify for this exemption.
5. Profit from the sale of securities.
6. Other non-common exemptions are in place (such as profits from foreign permanent establishment, lump sums received by way of retiring gratuity, compensation for death or injuries, etc.). More information can be provided upon request.

The following are tax deductible from income:

1. Contribution to trade unions or professional bodies.
2. 20% of rental income.
3. Donations to approved charities (with receipts).
4. Social Insurance, medical fund, life insurance premiums (maximum deductions apply).
5. Other non-common deductions are in place (such as amount invested in approved innovative small and medium sized enterprises, etc.). More information can be provided upon request.

• Social Insurance

Social Insurance is deducted/ contributed based on salaries earned by employees and by self-employed persons.  In case of employees, both the employee and employer are contributing for Social Insurance.

The rate of Social Insurance contributions applies to a maximum level of remunerations.  The maximum level for 2017 (2015 and 2016 also) is EUR 54,396 annually (weekly – EUR 1,046 and monthly EUR 4,533).

The rate of Social Insurance is 7.8%, therefore 7.8% is contributed by the employee and 7.8% is contributed by the employer.  Other employer’s contributions based on employee’s remuneration are:

• Social Cohesion – 2% (no maximum applies)
• Redundancy fund – 1.2% (restricted to maximum)
• Industrial training fund – 0.5% (restricted to maximum)
• Holiday fund (if not exempt) – 8% (restricted to maximum)

Self-employed persons contribution rate is 14.6% of their income (subject to lower and maximum limits depending on the activities of the self-employed person).

• Special Contribution for Defence

Special Contribution for Defence is charged to Cyprus resident Companies, tax resident individuals and Cyprus domiciled individual on certain types of income.  The types of income and relevant rates are as follows:

*Certain notes/ criteria apply for the above.  Further information can be provided upon request.

Deemed Dividend Distribution

A Cyprus Tax Resident Company is deemed to distribute as dividend 70% of its accounting profits, two years from the end of the tax year in which the profits were generated.  Such deemed dividend distribution is reduced with the actual payment of dividends for the specific year.

On the remaining amount (i.e. deemed dividend distribution less actual dividend paid), 17% Special Contribution for Defence is imposed.  This rule applies only in the case where the ultimate direct/ indirect shareholders are individuals who are both Cyprus tax resident and Cyprus domiciled.

• Conclusion

Savva & Associates aims to work with clients to ensure their Cyprus and international structures are established and administered to the highest level of international standards. Our highly experienced and qualified team will ensure the correct structuring of your Companies and provide comprehensive advice in all VAT and Tax matters.

• Introduction 

 We always find it important for our clients and collaborators to refresh their knowledge on the Cyprus tax system.  We will therefore use our best to touch base with all matters relating to the Cyprus tax system starting with matters such as personal income tax, Social Insurance and Special contribution of defence.  Other topics will be covered in our following articles

• Personal Income Tax 

The basic principle is that all Cyprus tax residents (individuals), are taxed on their worldwide chargeable income (i.e. income accrued or derived from all sources in Cyprus and abroad).  Non-Cyprus tax residents are taxed on certain income sourced in Cyprus.

A person is considered to be Cyprus tax resident in case he/ she spends more than 183 days in Cyprus (60 days if some criteria are met) in one calendar year.

The following income tax rates apply:

• First EUR 19,500 – Nil
• From EUR 19,501 to EUR 28,000 – 20%
• From EUR 28,001 to EUR 36,300 – 25%
• From EUR 36,301 to EUR 60,000 – 30%
• Over EUR 60,000 – 35%

The following types of income are exempt from income tax:

1. Interest (except for interest arising from ordinary business activities).
3. 50% of the remuneration of individuals that were non-residents of Cyprus before the commencement of employment and their annual remuneration exceeds the amount of EUR 100,000 per year. Certain criteria need to be met to qualify for this exemption.
4. 20% of remuneration of individuals that were non-residents of Cyprus before the commencement of employment with a maximum of EUR 8,550 annually. Certain criteria need to be met to qualify for this exemption.
5. Profit from the sale of securities.
6. Other non-common exemptions are in place (such as profits from foreign permanent establishment, lump sums received by way of retiring gratuity, compensation for death or injuries, etc.). More information can be provided upon request.

The following are tax deductible from income:

1. Contribution to trade unions or professional bodies.
2. 20% of rental income.
3. Donations to approved charities (with receipts).
4. Social Insurance, medical fund, life insurance premiums (maximum deductions apply).
5. Other non-common deductions are in place (such as amount invested in approved innovative small and medium sized enterprises, etc.). More information can be provided upon request.

• Social Insurance

Social Insurance is deducted/ contributed based on salaries earned by employees and by self-employed persons.  In case of employees, both the employee and employer are contributing for Social Insurance.

The rate of Social Insurance contributions applies to a maximum level of remunerations.  The maximum level for 2017 (2015 and 2016 also) is EUR 54,396 annually (weekly – EUR 1,046 and monthly EUR 4,533).

The rate of Social Insurance is 7.8%, therefore 7.8% is contributed by the employee and 7.8% is contributed by the employer.  Other employer’s contributions based on employee’s remuneration are:

• Social Cohesion – 2% (no maximum applies)
• Redundancy fund – 1.2% (restricted to maximum)
• Industrial training fund – 0.5% (restricted to maximum)
• Holiday fund (if not exempt) – 8% (restricted to maximum)

Self-employed persons contribution rate is 14.6% of their income (subject to lower and maximum limits depending on the activities of the self-employed person).

• Special Contribution for Defence

Special Contribution for Defence is charged to Cyprus resident Companies, tax resident individuals and Cyprus domiciled individual on certain types of income.  The types of income and relevant rates are as follows:

*Certain notes/ criteria apply for the above.  Further information can be provided upon request.

Deemed Dividend Distribution

A Cyprus Tax Resident Company is deemed to distribute as dividend 70% of its accounting profits, two years from the end of the tax year in which the profits were generated.  Such deemed dividend distribution is reduced with the actual payment of dividends for the specific year.

On the remaining amount (i.e. deemed dividend distribution less actual dividend paid), 17% Special Contribution for Defence is imposed.  This rule applies only in the case where the ultimate direct/ indirect shareholders are individuals who are both Cyprus tax resident and Cyprus domiciled.

• Conclusion

Savva & Associates aims to work with clients to ensure their Cyprus and international structures are established and administered to the highest level of international standards. Our highly experienced and qualified team will ensure the correct structuring of your Companies and provide comprehensive advice in all VAT and Tax matters.