Expatriate Executive: Cyprus

Summary of local taxation situation

Residence is defined as presence in the country for more than 183 days in a calendar year (which is the tax year), and then applies to the whole year. Resident individuals are subject to tax on their world-wide income.

Various deductions are permitted, including some in respect of share ownership; and the first EUR19,500 of personal income is exempt from tax.

Income from EUR19,50-28,000 is taxed at 20%; income from EUR28,001-36,300 at 25%; and income above EUR36,300 at 30%.

Non-residents of Cyprus are taxed in Cyprus on employment income (including benefits), in relation to services rendered in Cyprus, profits from a business activity which is carried out through a permanent establishment in Cyprus, rentals from immoveable property situated in Cyprus, and pensions in respect of employment exercised in Cyprus, with the exception of pensions paid from a fund established by the Government or local authority.

Foreign citizens, resident or otherwise, pay 5% on pension income received in Cyprus above EUR3,417 per annum.

A 'Special Defence Contribution' applies to certain types of income as follows:

• 3% on: interest received by provident funds; the profits of semi-governmental bodies; rental income received by a Cyprus individual or corporate resident from immovable property (after deducting 25%); interest received by an individual with a yearly income below EUR11,960 and interest received by individuals from Government bonds and Government savings certificates.
• 10% on: interest received by a legal entity unrelated to its normal business or by an individual with income over EUR11,960 pa.
• 15% on: dividends received by individuals in Cyprus.

Individuals exercising an office or employment in Cyprus, whose residence was outside Cyprus before the commencement of the employment, are granted a tax exemption for 20% of their remuneration, or EUR8,000, whichever is the lower, during a period of three years starting at the beginning of the year following the year of commencement of their employment.

Employees and employers each pay social security contributions of 6.3% of gross pay.

>There is no tax on wealth, no inheritance tax and no alternative minimum tax. There is a capital gains tax of 20% on disposal of real estate, and annual real estate taxes on a sliding scale from nil to 4%, based on market value.

After the EU finally agreed its Tax Directive in June, 2003. Cyprus announced that it would implement the 'information sharing' provision of the Directive on entry to the Union in 2004. This means that information about savings returns received in Cyprus by nationals of other EU countries is now being passed to the tax authorities in the individuals' home countries.

NB: Cyprus tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is advisable.