Cyprus - Income Tax

Income Tax

Taxation of international executives

1000

Жалғаспалы контент

Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

The deadline for submission of the personal income tax returns is 31 July following the year of income. The tax return is submitted in electronic format via the Taxisnet System.

What is the Tax Year-End?
 

31 December.

What are the compliance requirements for tax returns in Cyprus?

Residents

Individuals must file their income tax returns electronically via the Taxisnet system, not later than 31 July following the end of the tax year (31 December), in the instance where their gross income exceeds the tax free threshold of 19,500 Euros (EUR).

A claim for deductions and allowances (IR59) is prepared at the beginning of the tax year and a statement of taxable income (IR63) for the tax year must accompany the tax return when submitted.

A self-assessment computation should be completed on the tax return. In the instance where a tax liability arises from the self-assessment computation, the tax should be paid by 31 July following the end of the tax year (e.g. by 31 July 2020 for the 2019 tax year).

After receiving the completed return, the tax office will proceed to issue an assessment of the tax payable and will give credit for the tax deducted from remuneration during the year under the Pay-As-You-Earn (PAYE) system operated by the employer and for any tax paid by the individual through self-assessment. If the tax assessment is correct, any tax due should be paid by the end of the month following the month in which the assessment is raised. If the tax assessment is not correct, a notice of objection must be lodged not later than the end of the month following the month in which the assessment is raised.

Non-residents

Non-tax resident individuals are charged to tax and required to file a return on income accruing or arising from sources within Cyprus i.e. income from employment exercised in Cyprus, if that income exceeds the tax free threshold of EUR19,500.

Tax rates

What are the current income tax rates for residents and non-residents in Cyprus?

Residents

Income tax table for 2020

Taxable income

Cumulative tax

Tax rate on income

 

bracket

 

in bracket

 

From EUR

To EUR

EUR

Percent

0

19,500

0

0

19,501

28000

1700

20

28,001

36,300

3,775

25

36,301

60,000

10,885

30

60,001

No limit

-

35

Non-residents

The above tax rates also apply to non–tax residents.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Cyprus?
 

Income Tax Law

The Cyprus income tax law defines the term “resident in Cyprus” when applied to an individual, meaning an individual who stays in Cyprus for a period or periods exceeding in aggregate 183 days in the year of assessment (1 January-31 December). A “non-resident or resident outside Cyprus” will be construed accordingly.

Furthermore, the definition of a tax resident has been amended to also provide that, an individual who does not stay in any other country/jurisdiction, for one or more periods exceeding in aggregate 183 days in the same tax year and is not tax resident in any other country/jurisdiction for the same year, is deemed as a resident in the Republic in that tax year, if all of the following conditions are met:

1. the individual stays in the Republic for at least 60 days in the tax year

2. exercises any business in the Republic and/or is employed in the Republic and/or holds an office with a Cyprus tax resident person at any time during the tax year

3. maintains (by owning or leasing) a permanent home in the Republic.

The law is further amended to clarify that an individual that cumulatively meets all the above conditions shall not be treated as a Cyprus tax resident in the tax year if, during that year the exercise of any kind of business in the Republic and/or employment and/or holding of an office with a tax resident person in the Republic is terminated.

Special Contribution for Defense Law

The Special Contribution for Defense (SDC) law, defines the term “resident in Cyprus” when applied to an individual, meaning an individual who is a Cyprus tax resident (as defined in the Income tax law - see paragraph above) and also is domiciled in Cyprus (as defined in the SDC Law). Therefore, if an individual is a Cyprus tax resident for income tax purposes but is not domiciled in Cyprus, s/he will not be considered as a Cyprus tax resident for Special Defense Contribution purposes.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country/jurisdiction for more than 10 days after their assignment is over and they repatriate.

There is no such restriction under Cyprus laws and the Cyprus tax residency is determined solely based on the rules described in the ‘residency rules’ section.

What if the assignee enters the country/jurisdiction before their assignment begins?

The days determining residency start as soon as the assignee enters the country/jurisdiction. Tax residency is determined solely based on the rules described in the ‘residency rules’ section.

Termination of residence

Are there any tax compliance requirements when leaving Cyprus?

Before leaving Cyprus, a tax clearance certificate must be obtained from the Tax Authorities. In order to receive a tax clearance, all tax obligations must be settled.

What if the assignee comes back for a trip after residency has terminated?

The individual is recognized as a Cyprus tax resident, if their stay in Cyprus satisfy the conditions described in the ‘residency rules’ section. Thus, if the assignee comes back for a trip and their overall stay in Cyprus in a calendar year does not exceed 183 days, they will not be regarded as a Cyprus tax resident and will only be liable to taxation on income sourced in Cyprus as a non-tax resident, which is in excess of EUR19,500.

Communication between immigration and taxation authorities

Do the immigration authorities in Cyprus provide information to the local taxation authorities regarding when a person enters or leaves Cyprus?

Not directly.

Filing requirements

Will an assignee have a filing requirement in the host country/jurisdiction after they leave the country/jurisdiction and repatriate?
 

Yes, if they spends in Cyprus more than 183 days in a calendar year. Otherwise, only if they have income sourced in Cyprus as a non-tax resident, which is in excess of EUR19,500.

Economic employer approach

Do the taxation authorities in Cyprus adopt the economic employer approach1 to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in Cyprus considering the adoption of this interpretation of economic employer in the future?
 

No, the taxation authorities in Cyprus do not adopt the economic employer approach to interpreting Article 15. There are no current plans to adopt it.

De minimus number of days

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
 

Not applicable.

Types of taxable compensation

What categories are subject to income tax in general situations?
 

The following categories of income are subject to income tax: 

  • income from any trade vocation or business
  • employment: including any other allowance granted in respect of employment (whether in money or otherwise)
  • pensions and annuities
  • rents, royalties, remuneration or other profits arising from property, including the value of the benefit, not exceeding the cost, derived by the owner of the land from the erection thereon at the expense of the tenant of any structure or improvement to any structure or building that shall become the property of the owner upon the termination of the tenancy
  • patents: any sums received on the sale of patents or patent rights, and royalties or other income received in respect of such patents
  • income derived by professional persons in Cyprus that are not resident in Cyprus, such as public entertainers, theatrical or musical or other groups of public entertainers, including football clubs and other athletic missions from abroad, are subject to tax with respect to their gross income sourced in Cyprus at the rate of 10 percent.

Intra-group statutory directors
 

Will a non-resident of Cyprus who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in Cyprus) trigger a personal tax liability in Cyprus, even though no separate director's fee/remuneration is paid for their duties as a board member?

Yes. The Cyprus tax Authorities will seek to tax in Cyprus a portion of the remuneration of the Individual, which can be attributed to their duties as a member of the board of directors of a Cyprus tax resident company.

a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in Cyprus?

Yes. The Cyprus Tax Authorities will seek to tax in Cyprus a portion of the remuneration of the Individual, irrespective of whether the individual will be physically present at the board meetings in Cyprus.

b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in Cyprus (i.e. as a general management fee where the duties rendered as a board member is included)?

No. The same tax implications will apply.

c) In the case that a tax liability is triggered, how will the taxable income be determined?

The portion of the remuneration that can be attributed to the duties of the individual as a board member of the Cyprus tax resident will be considered as a Cyprus sourced income and will be subject to taxation in Cyprus at the normal income tax rates.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Cyprus? If so, please provide a general definition of these areas.

The categories of income, which are exempt from tax, include:

  • retirement and death gratuities
  • commutation of pension
  • scholarship income
  • any religious, charitable or educational institution of public character
  • provident funds payments
  • profit from the sale of securities.

Certain employer provided housing allowances (employer’s contribution to rent)

Fully taxable.

Certain employer provided housing allowances (cost of utilities)

Fully taxable.

Living away from home allowance (LAFHA)

Fully taxable.

Certain employer provided tax reimbursements

Fully taxable.

Certain employer provided relocation reimbursements

Reimbursement for relocation expenses is not considered as a benefit in kind and therefore should not be taxable. This exemption is given up to EUR9,000 or the actual costs paid by the employer if there is documentary evidence (i.e. invoices paid).

Home leave

Fully taxable.

Certain employer provided education costs

Fully taxable.

Certain bonus payments

Fully taxable.

Certain interest subsidies

No tax charge arises in respect of below market rate or interest free loans from an employer.

Certain auto allowances

Fully taxable.

Health insurance

Medical or health insurance up to 1.5 percent of gross income of an employee is not taxable. Any excess amount is fully taxable.

Expatriate concessions

Are there any concessions made for expatriates in Cyprus? 

20 percent or EUR8,550 exemption:

  • The lower of 20 percent or EUR8,550 of the emoluments from any employment, which is exercised in Cyprus by an individual who was not resident of Cyprus before taking up employment in Cyprus is exempted from tax and applies from 1 January from the year following the year of commencement of such employment.

This exemption applies until year 2020 with regard to employment that commenced from 2012 onwards for a maximum period of 5 years.

50 percent exemption

  • 50 percent of the gross emoluments are allowed to be deducted from taxable income for individuals that were not a tax resident of Cyprus prior to the commencement of their employment in Cyprus.

This deduction applies when income exceeds EUR100,000 p.a. and is allowed for a period of 10 years, commencing from the year of employment.

This exemption is not available to individuals that were Cyprus tax residents for a period of 3 out of 5 years preceding the year of employment.

An individual will not be entitled to both exemptions simultaneously.

Salary earned from working abroad

Is salary earned from working abroad taxed in Cyprus? If so, how?

Tax residents are taxed on their worldwide income.

A foreign tax credit is available up to the level of tax that would have been imposed in Cyprus on the same source of income. Where an expatriate is from a non-treaty country/jurisdiction, Cyprus will allow unilateral relief for foreign taxes payable, up to a maximum of the Cyprus tax payable on the same source of income.

The remuneration from rendering outside of Cyprus salaried services for a total aggregate period in the year of assessment of more than 90 days to an employer not resident in Cyprus or to a permanent establishment outside Cyprus of an employer resident in Cyprus is exempt from tax.

Foreign pensions in respect of services rendered outside of Cyprus are tax free in respect of the first EUR3,420 and, thereafter, are taxed at a flat rate of 5 percent. However, the taxpayer may opt to be taxed in the normal way where the special mode of taxing their income results in a higher tax liability.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Cyprus? If so, how?

Income from the sale of capital assets, or stocks and shares or options thereon is not taxable.

Capital gains tax is imposed only on any gains (after adjusting for inflation) that arise from the disposal of immovable property situated in Cyprus. These gains are not included in ordinary income but are taxed separately at a flat rate of 20 percent. Gains from immovable property held outside of Cyprus are not liable to capital gains tax.

A full exemption from Capital Gains Tax is granted on any capital gains derived from the sale of immovable property, which was acquired from 16/07/2015 until 31/12/2016.

Capital losses

Capital losses cannot be set-off against taxable income.

Capital losses arising from the disposal of immovable property situated in Cyprus are set off against chargeable gains made on the same date. If there are no gains on the same date or if the gains are not enough to absorb the capital losses, any unrelieved loss is carried forward and is set off against a chargeable gain or gains made from a future disposal until the loss is relieved.

No loss, however, may be allowed to be carried back and set off against a gain of a previous disposal.

Losses arising from the disposal of exempt assets (i.e. securities) are not allowable.

Exceptions

Lifetime exemptions are available to individuals for capital gains up to EUR17,086 or in the case of agricultural land owned by a farmer, up to EUR25,629. Gains on the disposal of a dwelling house are exempt up to EUR85,430 if the owner resides in it continuously for at least 5 years before the disposal. These exemptions are not available separately. Therefore, an individual claiming a combination of these, is only entitled to a maximum exemption of EUR85,430.

Dividends, interest, rental income

Dividends and interest are exempt from income tax but are subject to the Special Defence Contribution tax at a rate of 17 percent and 30 percent respectively. SDC is levied only on Cyprus Tax Resident individuals who are also Cyprus Domiciled.

In case of Cyprus sourced dividends and interest, the tax is withheld at source. Special Defence Contribution tax on foreign sourced dividends and interest must be paid on a self- assessment basis by the individual taxpayer by the end of the 6 months ending 30/6 and 31/12 of each year at the latest.

Rental income received by a Cyprus resident is taxable under both the income tax and the Special Defence Contribution tax as follows.

Income tax

The net taxable rental income (after deducting 20 percent from gross rental income, any available capital allowances and interest on loan for the acquisition of the property) is included in the taxable income and taxed at the appropriate income tax rate.

Special Defense Contribution tax

Under the SDC tax, an amount of 25 percent is deducted from the gross amount of rental income. After this deduction, the remaining amount of rental income is subject to SDC tax at a rate of 3 percent.

General Rule

It should be noted that as from 16/07/2015 an amendment to the SCD law has been enforced. Based on the new provisions of the SDC law any dividends, interest and rents received by individuals who are Cyprus tax residents but are not domiciled in Cyprus (as defined in the SCD law), irrespective of the origin of the relevant income (i.e. from sources within Cyprus or abroad), are exempt from taxation.

Gains from stock option exercises

Residency status

Taxable at:

 

 

Grant

Vest

Exercise

Resident

N

N

Y*

Non-resident

N

N

Y/N

Other (if applicable)

N/A

N/A

N/A

* Only on difference between sale price less cost to acquire.

Personal use items

Gains realized from the disposal of personal use items (such as works of art, jewelry, coins, stamps, antiques etc.) are not subject to Cyprus personal income tax. Consequently, any losses incurred from such a disposal are not tax deductible.

Gifts

Gifts are not taxable. 

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Cyprus? If so, please discuss?

No additional issues other than those covered above.

Are there capital gains tax exceptions in Cyprus? If so, please discuss?

No additional issues other than those covered above.

General deductions from income

What are the general deductions from income allowed in Cyprus?

Deductions from income

Generally all outgoings and expenses wholly and exclusively incurred in the production of income are deductible for tax purposes. Specifically, however, the following deductions are allowed:

  • Professional subscriptions
  • Trade union subscriptions
  • Charitable donations and contributions

Personal allowances

  • Life insurance premium relief on policies insuring the individual's life: Premiums allowed are restricted to 7 percent of the capital sum insured. Premiums and contributions must not exceed 1/5th of net income. Where a policy issued is cancelled at any time within the first 6 years, part of the premiums already allowed as tax deductions are treated as income of the policyholder in the year of cancellation. If the cancellation is made at any time within 3 years from the date of such policy, 30 percent of the premiums for which a deduction had been allowed is added to income and 20 percent of such premiums if the cancellation is within the fourth, fifth and sixth year from the date of the insurance policy.
  • Contributions to the social insurance fund or other approved pension, provident or other funds: EU nationals may deduct their contributions to equivalent funds in their home country/jurisdiction provided that they are approved for tax purposes there. Foreign nationals may deduct their contributions after securing the consent of the Commissioner of Taxation.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Cyprus?

Current year gross-up is the normal method used.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Cyprus? For example, Pay-As- You-Earn (PAYE), Pay-As-You-Go (PAYG), etc.

Pay-as-you-earn (PAYE)

Tax on employment income must be withheld by the employer, under the PAYE system and remitted to the Tax Authorities monthly. This tax is credited towards the employee’s final tax liability. The employer has the obligation to submit annually tax form (IR7) entitled “Employer’s Return of Employees”. This return should be filed by the employer not later than 31 July of the year following the year of assessment, via the Taxisnet system.

  • Each employer is required to apply the PAYE regulations and make PAYE deductions of tax by reference to the Claim of Allowances form (TD 59) completed by each employee at the beginning of each year.
  • The estimated tax for the year is divided by 12 (for monthly paid employees) or by 52 (for weekly paid employees).
  • The monthly or weekly PAYE is withheld from each employee’s emoluments.
  • The base for PAYE deductions is form TD 59 which is handed over by the employee to the employer at the beginning of each year. It includes the salary together with benefits-in- kind. An employee must also declare other income such as rental income.
  • Allowances/deductions must also be declared by the employees.
  • The employer calculates the PAYE deduction based on the TD 59 and withholds monthly the respective tax from each employee’s emoluments.
  • Totals of deductions for 1 month are remitted by the end of the following month to the District Tax Collection Office, using form TD 61.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Cyprus? For example, a foreign tax credit (FTC) system, double taxation treaties, etc.?
 

Yes, relief for foreign taxes suffered is available through a network of Double Tax Treaties up to the level of tax that would have been imposed in Cyprus.

Where an expatriate is from a non-treaty country/jurisdiction, Cyprus will allow unilateral relief for foreign taxes payable, up to a maximum of the Cyprus tax payable on the same source of income.

General tax credits

What are the general tax credits that may be claimed in your country/jurisdiction? Please list below.
 

When the final tax liability is computed, credit is given for taxes withheld at source and for interim tax payments.

Sample tax calculation

This calculation assumes a married taxpayer coming to Cyprus with two children whose 3- year assignment begins 1 January 2018 and ends 31 December 2020. The taxpayer is entitled to an annual base salary of 100,000 US Dollars (USD), an annual bonus, cash allowances and various benefits in kind which are listed below. The calculation covers 3 years.

 

2018

USD

2019

USD

2020

USD

 

 

 

 

Salary

100,000

100,000

100,000

Bonus

20,000

20,000

20,000

Cost-of-living allowance

10,000

10,000

10,000

Housing allowance

12,000

12,000

12,000

Company car

6,000

6,000

6,000

Moving expense reimbursement

20,000

0

20,000

Home leave

0

5,000

0

Education allowance

3,000

3,000

3,000

Interest income from non-local sources

6,000

6,000

6,000


Exchange rate used for calculation: EUR1= USD1.1234 (31/12/2019)

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year and accrue evenly throughout the year.
  • Interest income is not remitted to Cyprus and it is received on 31 December.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Relocation expenses where receipts are not available.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Year ended

2018

EUR

2019

EUR

2020

EUR

Days in Cyprus during year

345

330

320

Earned income subject to income tax:

 

 

 

Salary

89,015

89,015

89,015

Bonus

17,803

17,803

17,803

Cost-of-living allowance

8,902

8,902

8,902

Housing Allowance

10,682

10,682

10,682

Company car

5,341

5,341

5,341

Moving expense reimbursement

17,803

 

17,803

 

 

 

 

Home leave

0

4,451

0

Education allowance

2,670

2,670

2,670

Total earned income

152,216

138,864

152,216

Interest income*

0

0

0

Total income subject to income tax

152,216

138,864

152,216

 

 

 

 

Deductions

 

 

 

50 percent Exemption**

76,108

69,432

76,108

Special contributions

0

0

0

Social Insurance contributions***

4,243

4,536

4,554

National Health Insurance Contributions****

 

2058

3934

 

Total taxable income

71,865

62,838

67,620


Calculation of tax liability

 

2018

EUR

2019

EUR

2020

EUR

Taxable income as above

71,865

62,838

67,620

Cyprus tax thereon

15,038

11,878

13,552

Less:

 

 

 

Tax rebates (dependent spouse)

0

0

0

Foreign tax credits

0

0

0

Total Cyprus tax

15,038

11,878

13,552


* Interest income is exempt from income tax but the gross amount is subject to Special Defence Contribution at a rate of 30 percent with tax credit available for any foreign withholding tax suffered. Based on the new provisions of the SDC law any interest income received by individuals who are Cyprus tax residents but are not domiciled in Cyprus irrespective of the origin of the relevant income (i.e. from sources within Cyprus or abroad) are exempt from taxation. However, interest income is subject to National Health Insurance System (NHIS) contributions at a rate of 1.70 percent as of 1 March 2019 and rate will be revised upwards to 2,65 percent as of 1 March 2020.

** 50 percent of the gross emoluments are allowed to be deducted from taxable income for individuals that were not a tax resident of Cyprus prior to the commencement of their employment in Cyprus.

This deduction applies when income exceeds EUR100,000 p.a. and is allowed for a period of 10 years, commencing from the date of employment.

**** Social insurance contributions assuming that the expatriate is subject to Social Insurance in Cyprus:

For 2017-2018 year: Maximum yearly insurable earnings EUR54,396 x 7.8 percent

For 2019 year: Maximum yearly insurable earnings EUR54,648 x 8.3 percent

For 2020 year: Maximum yearly insurable earnings EUR54,864 x 8.3 percent

**** National Health Insurance System contributions assuming that the expatriate is subject to Social Insurance in Cyprus:

For 2019 year: (1.7%*10/12*Total income subject to tax)+(1.7%*Interest income in EUR), since NHIS has come into effect as of 1 March 2019.

For 2020 year: (1.7%*2/12* Total income subject to tax)+(2.65%*10/12* Total income subject to tax)+(2.65%*Interest income in EUR).

Footnotes

1. Certain tax authorities adopt an “economic employer” approach to interpreting Article of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country/jurisdiction for a period of less than 183 days in the fiscal year (or a calendar year of a 12-month period), the employee remains employed by the home country/jurisdiction employer but the employee’s salary and costs are recharged to the host entity, then the host country/jurisdiction tax authority will treat the host entity as being the “economic employer” and therefore the employer for the purposes of interpreting Article 15. In case, article 15 relief would be denied and the employee would be subject to tax in the host country/jurisdiction.

2. For example, an employee can be physically present in the country/jurisdiction for up to 60 days before the tax authorities will apply the economic employer approach.

Disclaimer

All information contained in this publication is summarized by KPMG Limited, the Cyprus member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Cyprus Income Tax Law of 2002 (L.118(I)/2002) as amended, the Special Contribution for the Defence of the Republic Law of 2002 (L.117(I)/2002) as amended, the Assessment and Collection of Taxes Law of 1978 (L.4/1978) as amended, the Stamp Duty Law of 1963 (L.19/1963) as amended, the Capital Gains Tax Law of 1980 (L.52/1980) as amended, the Immovable Property Tax Law of 1980 (L.24/1980) as amended, the Cyprus VAT Law of 2000 (N95.(I)/2000) as amended, the Social Insurance Law of 2010 (L.59(I)/2010) as amended and the General Healthcare System Law of 2001 (L.89(I)/2001) as amended and the Informational guidance for General Healthcare System issued by the Cyprus Tax Department on 9 April 2019.

Copyright

© 2020 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

Бізбен байланысыңыз

 

Want to do business with KPMG?

 

loading image Ұсынысқа сұрау салу