Taxes in Cyprus: Overview of the Cypriot Tax System
Cyprus boasts one of the most attractive and advantageous tax systems in the European Union. Transparent regulations, low rates, and numerous tax incentives make Cyprus a preferred destination for businesses and individuals alike. An added advantage is the alignment of Cyprus’s legislation with all EU requirements, ensuring reliability and stability for tax optimization and financial planning.
In this overview, we will explore the key taxes in Cyprus, the available incentives, and how tax planning in Cyprus can help you build a successful financial strategy.
Advantages of the Cyprus Tax System
The Cypriot tax system is renowned for its simplicity and favorable conditions, offering an ideal environment for conducting business, managing finances, and living in the country. Designed with modern economic realities in mind, Cyprus has implemented progressive approaches that help reduce the tax burden for both individuals and businesses.
- Compliance with International Standards
Cyprus is not an offshore jurisdiction and fully adheres to the legislative requirements of the European Union and international standards. This allows taxpayers to benefit from low EU tax rates without the legal risks associated with offshore territories. - Favorable Taxation for Individuals
Cyprus offers one of the most advantageous tax regimes for individuals:- The highest tax-free personal income threshold in Europe: €19,500
- No taxes on dividends and interest
- No inheritance, wealth, or gift taxes
- Tax benefits for highly skilled professionals, including a 50% income tax exemption
- Competitive Corporate Tax Rates
Cyprus has a low corporate tax rate of 12.5%. IT companies can benefit from the IP Box regime, reducing the effective tax rate to just 2.5%. - Flexibility in Gaining Tax Residency
Tax residency in Cyprus can be obtained by spending more than 183 days on the island annually or by using the “60-day rule.” - No Hidden Taxes
There are no unexpected or non-transparent fiscal obligations, making the system predictable and convenient for long-term tax planning.
Whether you are planning to relocate or start a business, Cyprus’s tax system offers an excellent combination of economic advantages and legal stability.
Tax Residency in Cyprus
What Does It Mean to Be a Tax Resident of Cyprus?
A tax resident of Cyprus is an individual or entity required to pay taxes under the country’s local legislation. This status is determined based on the time spent in Cyprus, place of residence, or company registration.
Once you obtain Cyprus tax residency, you must declare and pay taxes on your global income, meaning income earned both within and outside Cyprus.
An individual can become a tax resident of Cyprus under two rules:
- The 183-Day Rule
A person is considered a tax resident if they spend more than 183 days in Cyprus within a calendar year. - The 60-Day Rule
This alternative was introduced to provide greater flexibility for individuals conducting business or professional activities in Cyprus. It allows you to benefit from Cyprus’s tax advantages without having to stay the entire year. This rule applies to individuals who:- Spend at least 60 days in Cyprus during the year.
- Work, manage a business, or serve as a director of a Cypriot company, receiving a salary subject to social contributions.
- Have permanent accommodation in Cyprus (either rented or owned).
- Are not tax residents of another country and do not spend more than 183 days in any other country.
Benefits of Cyprus Tax Residency
- Enjoy favorable tax rates.
- Receive dividends from foreign companies tax-free.
- Utilize Cyprus’s double taxation agreements with other countries.
Tax optimization in Cyprus is an excellent way to reduce your tax burden while taking advantage of the country’s favorable tax system. Becoming a tax resident in Cyprus grants access to benefits such as low tax rates and exemptions on dividends and interest. This makes tax planning in Cyprus a straightforward and effective tool for managing finances and minimizing taxes within the bounds of the law.
Key Taxes in Cyprus
The main taxes in Cyprus can be broadly categorized into three groups: individual taxes, corporate taxes, and indirect taxes. This structure provides flexibility in managing tax obligations based on the taxpayer’s status, type of activity, and sources of income. Below, we will explore the primary types of taxes in Cyprus.
Personal Taxes in Cyprus
Income Tax for Individuals in Cyprus
Income tax in Cyprus is applied on a progressive scale, meaning the tax rate increases as income rises. Annual income up to €19,500 is completely tax-exempt.
Income Tax Rates:
• Up to €19,500 — 0% (no tax)
• €19,501 to €28,000 — 20%
• €28,001 to €36,300 — 25%
• €36,301 to €60,000 — 30%
• Over €60,001 — 35%
Tax Benefits for Foreign Professionals
If you are a foreigner earning over €55,000 annually in Cyprus, you may qualify for a significant tax reduction. Current legislation provides a 50% reduction in income tax for 17 years, making Cyprus an attractive destination for highly skilled professionals from abroad.
Additional Tax Benefits in Cyprus
Cyprus stands out for its absence of certain taxes that are common in other countries:
• No inheritance tax: Assets can be passed to heirs without any tax liability.
• No wealth tax: There are no additional charges on large assets or savings.
• No annual property tax: Property ownership in Cyprus does not incur an annual tax.
Key Taxes for Companies in Cyprus
Corporate Tax Rate: Just 12.5%
Cyprus boasts one of the lowest corporate tax rates in the European Union. By comparison, Portugal’s rate is 20%, Italy and Austria impose a 24% tax, and Spain and France have a 25% rate. This makes Cyprus a popular jurisdiction for international companies looking to reduce their tax liabilities.
IP Box Regime Tax Incentives
Cyprus offers tax benefits under the IP Box regime for companies involved in scientific research, software development, and innovative technologies. This regime allows companies to significantly reduce their tax burden, with up to 80% of profits from the use or sale of such assets exempt from taxation.
Tax on Dividends and Interest
Companies registered in Cyprus are exempt from taxes on income derived from dividends, interest, and other forms of passive income.
VAT in Cyprus
The standard Value Added Tax (VAT) rate in Cyprus is 19%. However, reduced rates apply to certain categories of goods and services. Some activities, such as public healthcare, educational services, and financial or insurance services, are entirely exempt from VAT.
Capital Gains Tax
This tax applies only to profits related to real estate located in Cyprus. The rate is 20% and is levied on gains from the sale of property or shares in companies that own such property.
Interested in Registering a Company in Cyprus?
Read more about the requirements and the process of setting up your business.
Social and Medical Insurance Contributions in Cyprus
Cyprus offers one of the most affordable insurance systems in Europe, providing comprehensive medical and social services at relatively low rates.
Social Insurance
Both employers and employees are required to contribute to the Social Insurance Fund, which supports a range of social benefits, including pensions, unemployment benefits, and sick leave payments. The contribution rate for employees is 8.8% of their salary, matched by an equal contribution from the employer.
Medical Insurance (GeSY)
Contributions to the General Healthcare System (GeSY) vary depending on the category of the individual (employees, self-employed, or public officials). For company employees, the rate is 2.65%, while for self-employed individuals, it is 4%.
Social and Medical Insurance Contribution Rates on Salaries in Cyprus
Category | Employer | Employee |
Social Insurance | 8.8% | 8.8% |
Medical Insurance | 2.9% | 2.65% |
Social Cohesion Fund | 2% | — |
Unemployment Benefits Fund | 1.2% | — |
Human Resource Development Fund | 0.5% | — |
This system ensures stability and access to essential social and medical services while keeping contribution rates at a reasonable level, making it financially manageable for both employers and employees.
How to Pay Taxes in Cyprus
Paying taxes in Cyprus is a streamlined process that ensures transparency and convenience through modern electronic platforms and clear tax regulations. All taxpayers in Cyprus must submit their tax returns electronically via the official Tax For All portal. This system allows for quick and efficient income declaration and tax calculations.
It is important to note that the deadlines for filing returns and payment methods may vary depending on the taxpayer category—individuals, sole proprietors, or legal entities. For individuals, the obligation to file a return applies if their annual income exceeds the tax-free threshold of €19,500.
1. Registration on the Tax For All Portal
To file a return, taxpayers must register on the portal by creating an account using their Tax Identification Code (TIC) and a digital signature.
2. Preparation and Submission of Tax Returns in Cyprus
- Annual Filing: Individual income tax returns must be filed by July 31 of the year following the reporting period.
- Corporate and Sole Proprietor Filing: Legal entities and sole proprietors must file returns according to their category and tax type (e.g., corporate tax, VAT). Corporate tax returns must be submitted electronically by March 31 of the second year following the tax year.
3. Tax Payment in Cyprus
Taxes can be paid via bank transfer, online banking, or directly through the Tax For All portal or the JCCsmart online platform. Payments can also be made at bank branches using the appropriate payment code.
Our Cyprus tax consultants, auditors, and accountants provide comprehensive services, including financial analysis, document preparation, and the filing and submission of tax returns.
Tax Optimization in Cyprus
With low tax rates and a wide range of opportunities for businesses and individuals, Cyprus offers numerous tools to minimize tax expenses. Below are the key strategies for reducing taxes in Cyprus:
- Corporate Tax
Cyprus boasts one of the lowest corporate tax rates in the EU at just 12.5%. For IT companies, this can be reduced to as low as 2.5% under the IP Box regime. - Dividend Tax in Cyprus
Dividends paid to non-domiciled individuals in Cyprus are fully exempt from taxation. This is highly beneficial for foreign entrepreneurs who own businesses in Cyprus. - No Capital Gains Tax
In most cases, capital gains from the sale of shares or other investments are not taxed, unless they involve real estate located in Cyprus. - Double Taxation Treaties
Cyprus has signed over 65 double taxation agreements, which help avoid double taxation on income. This is particularly advantageous for international businesses and individuals with income from multiple jurisdictions. A full list of these agreements is available on the official website of the Cyprus Ministry of Finance. - Tax Benefits for Highly Skilled Professionals
Foreign nationals employed in high-level positions, such as top managers, directors, or key specialists, can benefit from a 50% income tax exemption on their earnings. - VAT
Companies may take advantage of reduced VAT rates or full exemptions, depending on the type of activity, which helps minimize tax costs in Cyprus. - Simplified Tax Residency System
Cyprus offers programs that allow individuals to gain tax residency with minimal requirements, such as the “60-day rule.” This enables tax obligations to be optimized while spending relatively little time in Cyprus each year.
These tools make Cyprus one of the most competitive tax regimes in Europe, attracting businesses and professionals from around the world.
Tax Planning Services in Cyprus
Our team of auditors, accountants, and tax experts in Cyprus offers professional assistance in developing effective tax solutions. We create personalized strategies and help you take full advantage of the tax benefits available in Cyprus.
- Consultations on corporate and personal taxation
- Development of tax planning strategies for individuals and businesses
- Assistance in obtaining tax residency status in Cyprus
- Optimization of corporate tax, including reduced rates for IT companies
- Support in obtaining Non-Domicile status and tax exemptions
- Accounting services and preparation of financial statements
- Preparation and submission of tax returns in Cyprus
We would be delighted to welcome you to our office in Larnaca! Our specialists are ready to provide personalized consultations, answer all your questions, and help you develop optimal solutions for you and your business.
Contact us today to schedule a meeting or receive an online consultation!
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FAQ
Cyprus offers low tax rates, incentives for both individuals and businesses, no inheritance or gift taxes, and flexible conditions for obtaining tax residency.
To take full advantage of Cyprus’s low-tax jurisdiction and optimize taxation, individuals have two options:
- The 183-Day Rule: Requires staying in Cyprus for at least 183 days in a tax year.
- The 60-Day Rule: Allows individuals to become tax residents by spending only 60 days in Cyprus, provided they meet additional criteria.
The main taxes in Cyprus fall into three categories: individual taxes, corporate taxes, and indirect taxes.
- Individuals: Income tax, which depends on income level and residency status, and mandatory social insurance contributions.
- Companies: Corporate tax on profits.
- Indirect Taxes: VAT on goods and services, as well as stamp duty and property transfer tax for real estate transactions and contracts.
Taxes can be paid via the Tax For All portal, the JCCsmart online platform, bank transfers, or online banking. Tax returns are filed electronically, making the process quick and convenient.
Tax optimization involves reducing tax liabilities by leveraging incentives, low tax rates, international agreements, and favorable regimes like the IP Box or Non-Domicile status.
For individuals, the deadline is typically July 31 of the following year. For legal entities, returns must be filed by March 31 of the second year following the end of the tax period.
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11B Lyuteranska St., off. 23, 01024