Taxation in Nicosia, Cyprus
What are the tax rates in Nicosia, Cyprus? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Nicosia, Cyprus.
Personal taxation in Nicosia
Effective personal income tax rate
| Annual income | $25,000 | $40,000 | $80,000 | $125,000 | $200,000 |
|---|---|---|---|---|---|
| Rate | 3% | 11% | 22% | 26% | 30% |
Teleport city rankings for personal income tax
Personal taxation puts Nicosia in position 40 of all Teleport Cities.
Basis
A resident individual is subject to income tax on his/her worldwide income. A nonresident individual is taxed only on Cyprus- source income. Certain types of income are subject to SCD at 17% (dividends), 30% (interest) and 3% (rent).
Residence
An individual is resident in Cyprus for income tax purposes if he/she stays in Cyprus for a period or periods exceeding 183 days in the aggregate in a tax year. For SCD purposes, an individual is a resident if he/she also is domiciled in Cyprus.
Filing status
Each individual is assessed on a separate basis; joint assessment of couples is not possible.
Rates
The first EUR 19,500 is tax-free, with progressive tax rates up to 35% imposed on the remaining amount.
Deductions and allowances
The most important personal deductions are: donations to approved charities; social insurance fund contributions (and similar contributions paid abroad); life insurance premiums; pension plan contributions; and medical fund contributions. Expenses incurred for the production of taxable income are tax deductible provided they are supported by invoices or relevant receipts.
Taxable income
Personal income tax is imposed on income from an office or employment; business profits; discounts; pensions; charges or annuities; rents, royalties, remuneration or other profits from property; and net consideration in respect of trade goodwill. Benefits in kind are included in taxable income. If a company director or individual shareholder (or spouse or relatives (up to the second degree)) receives a loan or financial assistance from the company, he/she will be deemed to have received a benefit in kind equal to 9% per annum of the loan/assistance.
Capital gains
Gains derived from the sale of shares are tax- exempt. Capital gains tax at a rate of 20% is imposed on gains from the disposal of immovable property situated in Cyprus and on gains from the disposal of shares in an unlisted company that owns directly or indirectly immovable property situated in Cyprus.
Other taxes on individuals
Real property tax
Tax is imposed annually on the market value of immovable property on 1 January 1980, at rates ranging from 0.6% to 1.9%.
Social security
An employee is required to make social insurance contributions at 7.8% of his/her salary (subject to a maximum cap on salary of EUR 54,396 for 2015). Self-employed individuals contribute at 14.6%. The contribution is calculated on notional income, which varies according to the trade or profession.
Stamp duty
Stamp duty is payable on a document if it relates to property situated in Cyprus or to an act to be performed in Cyprus. Stamp duty on commercial contracts is charged at rates that vary according to the contract amount. A ceiling of EUR 20,000 per document applies.
Compliance for individuals
Penalties
Administrative penalties of EUR 100 or EUR 200 (depending on the circumstances) are imposed for the late filing of a return or late submission of information requested by the tax authorities. Further, where the tax liability as per the tax return is not paid by the statutory deadlines or the date in an assessment issued by the Commissioner, an additional 5% penalty on the tax payable will be imposed. Interest for late payment is charged at 4% per annum.
Filing and payment
The employer withholds tax on employment income under the PAYE system. A self-employed individual pays tax through the provisional and self-assessment systems.
Corporate taxation in Nicosia
Teleport city rankings for corporate income tax
Corporate taxation puts Nicosia in position 24 of all Teleport Cities.
Basis
Resident companies are taxed on worldwide income; foreign- source income derived by resident companies is subject to corporation tax in the same way as Cyprus-source income. Nonresident companies are taxed only on Cyprus-source income. Branches are taxed in the same way as tax resident companies.
Taxation of dividends
Dividends received by a Cyprus resident company are exempt from corporation tax (whether received from a company located in Cyprus or abroad). Dividends received by a Cyprus resident company are exempt from the Special Contribution for Defense (SCD), unless the dividends are paid out of profits that are more than four years old. Dividends received from a nonresident company also generally are exempt from SCD, although the exemption does not apply if more than 50% of the nonresident payer company’s activities, directly or indirectly, lead to investment income and the foreign tax burden on the income of the nonresident payer is substantially lower than the tax burden of the company in Cyprus (i.e. less than 6.25%). If not exempt, dividends are liable to SCD at 17%.
Residence
A company is resident in Cyprus if its management and control is exercised in Cyprus. Registration in the country is not decisive.
Losses
Tax losses may be carried forward for five years for set off against future taxable profits. The carryback of losses is not permitted.
Incentives
Under an intellectual property (IP) regime, 80% of the net profit from the exploitation of IP is exempt from taxation. The net profit is calculated after deducting from the IP income all direct expenses associated with the production of the income, as well as capital allowances at 20%.
Rate
Companies and public corporate bodies are subject to corporation tax at 12.5%. Certain types of income are subject to SCD at 17% (dividends), 30% (interest) and 3% (rents).
Participation exemption
See “Taxation of dividends” and “Capital gains.”
Foreign tax credit
A unilateral tax credit is granted for tax paid abroad, regardless of the existence of a tax treaty. The provisions of a relevant tax treaty will apply if they are more beneficial.
Taxable income
Corporation tax is imposed on business profits; interest and discounts; rents, royalties, remuneration or other profits from property; and net consideration in respect of trade goodwill. Expenses incurred for the production of taxable income are tax deductible if supported by invoices or relevant receipts. Losses carried forward or surrendered by other group companies (group relief) may be offset against taxable profits.
Capital gains
Gains derived from the sale of shares are tax- exempt. Capital gains tax at a rate of 20% is imposed on gains from
Holding company regime
There is no special holding company regime, but dividend income and capital gains generally are exempt from tax (see “Taxation of dividends” and “Capital gains”).
Other taxes on corporations
Stamp duty
Stamp duty is payable on a document if it relates to property situated in Cyprus or to an act to be performed in Cyprus. Stamp duty on commercial contracts is charged at rates that vary according to the contract amount. A ceiling of EUR 20,000 per document applies.
Social security
An employer must make social insurance contributions amounting to 9.5% of an employee’s gross salary, subject to a cap on the annual earnings on which the contributions are payable. An employer also is required to contribute 2% of all earnings of its employees to the social cohesion fund.
Other
The SCD is imposed on income derived by Cyprus resident companies and individuals resident and domiciled in Cyprus. The SCD is levied on dividends (17%), interest (30%) and rent (3%). Some exemptions apply (see “Taxation of dividends” above).
Transfer tax
The transfer of immovable property is subject to a transfer fee ranging from 3% to 8%, calculated on the market value of the property as estimated by the land registry department. A 50% reduction in the transfer fees will apply for immovable property transfers up through 31 December 2016.
Capital duty
Capital duty of EUR 105, plus 0.6%, is payable on the nominal value of authorized share capital.
Real property tax
Tax is imposed annually on the market value of immovable property on 1 January 1980, at rates ranging from 0.6% to 1.9%.
Payroll tax
Under the PAYE system, the employer is required to withhold personal tax on the salary of its employees.
Compliance for corporations
Consolidated returns
Taxation on a consolidated basis is not permitted and each company must submit a separate return. The setoff of group losses is possible provided there is a 75% parent- subsidiary relationship, including subsidiaries under the 75% control of a common parent company. Group loss relief is available only between resident companies.
Penalties
Administrative penalties of EUR 100 or EUR 200 (depending on the circumstances) are imposed for the late filing of a return or the submission of information requested by the tax authorities. Further, where the tax liability as per the tax return is not paid by the statutory deadlines or the date in an assessment issued by the Commissioner, an additional 5% penalty on the tax payable is imposed. If a company fails to submit its tax return and settle its tax obligations within 30 days from the return submission deadline, an additional 5% tax on the amount of the unsettled tax is imposed. Interest for late payment is charged at 4% per annum.
Rulings
Rulings are available on matters of interpretation of the tax law.
Tax year
The tax year is the calendar year. The accounts of a company may be closed on a date other than 31 December, in which case, taxable profits are apportioned on a time basis to the relevant tax years.
Filing requirements
Electronic filing is mandatory for companies. The deadline for the electronic submission of the tax return is 31 March of the year following the tax year. Companies must make two provisional payments of tax on 31 July and 31 December. If the income declared for the payment of the provisional tax is lower than 75% of the income as finally determined, an additional amount equal to 10% of the difference between the final and provisional tax is payable.
Other taxation in Nicosia
Value added tax
Filing and payment
The deadline for submission of the quarterly VAT return and VAT payment is the 10th of the second month following the relevant period.
Rates
The standard rate is 19%, and there are reduced rates of 0%, 5% and 9%. Certain supplies are zero-rated or exempt.
Taxable transactions
VAT is levied on the sale of goods, the provision of services and the import of goods from outside the EU.
Registration
The registration threshold for VAT purposes is EUR 15,600 (EUR 10,251 for intra-community acquisitions of goods). Additionally, all taxable persons making taxable supplies of goods or services to nontaxable persons must issue and deliver “legal receipts.” Penalties apply for failure to comply.
Anti-avoidance rules
Transfer pricing
Transactions between related parties must be carried out at market value and on normal commercial terms.
Other
A general anti-avoidance provision allows the Commissioner of Income Tax to disregard artificial/fictitious transactions and assess tax on the person concerned.
Investment basics
Foreign exchange control
There are no exchange controls.
Accounting principles/financial statements
IAS/IFRS. Financial statements must be prepared annually.
Principal business entities
These are the public and private limited liability company, partnership and branch of a foreign corporation.
Withholding tax
Dividends
Dividends paid to a nonresident (company or individual) are not subject to withholding tax. Dividends paid to a resident company are not subject to withholding tax, subject to the four-year rule (see “Taxation of dividends” above), but dividends paid to a resident and domiciled individual are subject to SCD at 17% (applied as a withholding tax).
Other
Rent paid by a Cyprus resident company or partnership, the government or any other local authority to a Cyprus tax resident is subject to a 3% SCD on 75% of the gross rental income. The tax is withheld at source.
Technical service fees
Technical fees paid to a nonresident are subject to a 10% withholding tax, unless the rate is reduced under a tax treaty. There is no withholding tax on the payment of technical fees by one resident company to another.
Interest
No withholding tax is imposed on interest paid to a nonresident. Interest paid to a resident is subject to SCD deducted at source at a rate of 30%.
Royalties
Royalties paid to a nonresident for the use of rights in Cyprus are subject to a withholding tax of 5% on film royalties, and 10% on all other royalties. These rates may be reduced under a tax treaty or the EU interest and royalties directive. Royalties paid to a nonresident for the use of rights outside Cyprus are exempt from withholding tax. There is no withholding tax on the payment of royalties by one resident company to another.
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