What Is the Tax Rate in Cyprus? A Clear Overview of Current Tax Policies

Cyprus is known for its attractive tax system, which appeals to both residents and international businesses. Understanding the current tax rates is essential for anyone considering living, working, or investing there.

The standard corporate tax rate in Cyprus is 12.5%, one of the lowest in the European Union, while personal income tax rates vary from 0% to 35%, depending on income levels. This tiered system offers significant relief for low earners and competitive advantages for businesses.

Beyond these rates, Cyprus also provides various tax incentives and exemptions that can further reduce the overall tax burden. These factors make it an important destination for tax planning and financial strategy.

Overview of Taxation in Cyprus

Cyprus has a structured tax system with defined categories and rules. Tax residency determines how individuals and companies are taxed. The administration and enforcement of taxes are managed by a specific government body.

Key Tax Types

The main taxes in Cyprus include income tax, corporate tax, value-added tax (VAT), and special defense contribution (SDC).

• Corporate tax is a flat rate of 12.5% on worldwide income for resident companies.
• Personal income tax rates range from 0% to 35%, depending on income brackets.
• VAT standard rate is 19%, with reduced rates of 5% and 9% for certain goods and services.

Other relevant taxes are capital gains tax, immovable property tax (currently abolished but replaced by an annual levy on property owners), and customs duties. The tax system incentivizes foreign investment through various exemptions.

Tax Residency Rules

An individual is considered a tax resident in Cyprus if they spend more than 183 days in the country during a tax year.

Cyprus also applies a 60-day rule for tax residency if the individual meets all of these conditions:

• Does not reside in any other single state for more than 183 days.
• Is not tax resident in any other state.
• Resides in Cyprus for at least 60 days.
• Has Cyprus ties such as business or employment and owns or rents property.

Companies are tax resident if managed and controlled in Cyprus. Residency status affects worldwide income tax liability versus income generated only within Cyprus.

Cyprus Tax Authority

The Department of Taxation, part of the Ministry of Finance, is responsible for Cyprus tax matters. It manages tax collections, audits, and enforcement.

The authority provides detailed guidelines and online services for tax declarations. It also handles tax disputes and ensures compliance through audits and penalties.

Taxpayers must file annual returns by specific deadlines:

• Individuals: Typically by July 31 of the following year.
• Companies: Usually by the end of the month after six months from the financial year-end.

The Tax Authority facilitates digital submission, aiming to simplify taxpayer interactions.

Corporate Tax Rate in Cyprus

Cyprus offers a competitive corporate tax system with various incentives and exemptions aimed at attracting businesses. The tax structure balances a fixed rate with benefits for qualifying companies.

Standard Corporate Tax Rate

The standard corporate tax rate in Cyprus is 12.5%, one of the lowest in the European Union. This rate applies to taxable profits generated by resident companies and permanent establishments.

Non-resident companies with Cyprus-source income may also be subject to this rate. Taxable profits are calculated after allowable deductions such as expenses, depreciation, and losses carried forward.

Tax Incentives for Companies

Cyprus provides significant tax incentives to promote investment and economic activity. Qualifying companies can benefit from exemptions on dividends, capital gains, and foreign branch profits.

There is no withholding tax on dividends paid to non-resident shareholders. Additionally, profits from intellectual property may enjoy an effective tax rate as low as 2.5% under the IP Box regime.

Exemptions and Allowances

Certain income types are exempt from corporate tax, including dividends and gains from the disposal of securities. Cyprus also allows the carry-forward of tax losses for up to 5 years.

Interest income is subject to special rules, often exempt if earned by Cyprus tax residents under specific conditions. Companies may claim deductions for charitable donations, bad debts, and contributions to approved provident funds.

Personal Income Tax Rates

Cyprus uses a progressive tax system for personal income. Tax rates increase in steps depending on income levels. Various deductions and special regimes influence taxable income and overall tax liability.

Income Tax Bands

Income tax rates in Cyprus for individuals are structured as follows (annual income):

No tax is paid on the first €19,500 of income. Rates apply only to the income within each band, not the entire income.

Deductions and Credits

Taxpayers in Cyprus can reduce taxable income through various deductions. Contributions to social insurance and approved pension schemes are deductible. Additionally, certain expenses such as medical costs and donations to approved charities may qualify for deductions.

Tax credits directly reduce the tax owed. Eligible residents may claim personal allowances, reducing their final liability. Specific rules apply based on marital status and dependent children.

Special Tax Regimes for Individuals

Non-domiciled residents in Cyprus benefit from exemptions on dividends, interest, and rental income, regardless of the amount. This no-dom status encourages foreign professionals and retirees to reside in Cyprus.

There is also a favorable tax scheme for expatriates where a fixed amount of income is exempt from tax if certain conditions are met. High earners may apply for a 50% exemption on income exceeding €100,000 for up to 17 years, subject to criteria.

Value Added Tax (VAT) in Cyprus

VAT in Cyprus involves specific rates applied to goods and services, along with clearly defined obligations for businesses. It features a main rate, reduced rates for certain goods, and strict rules on registration and reporting.

Standard VAT Rate

The standard VAT rate in Cyprus is 19%. This rate applies to most goods and services supplied within the country.

Businesses selling taxable goods or services at this rate must charge VAT to their customers and remit it to the tax authorities. The 19% rate reflects the primary VAT rate imposed across most economic activities.

This standard rate aligns with VAT rates in many EU member states, allowing Cyprus to maintain harmonized tax practices within the union.

Reduced VAT Rates

Cyprus applies two reduced VAT rates: 5% and 9%.

The 5% rate applies to items such as certain food products, books, pharmaceuticals, and hotel accommodation.

The 9% rate covers sectors like domestic transportation, restaurant services (excluding alcoholic beverages), and some entertainment options.

These reduced rates aim to lessen the tax burden on essential goods and services, promoting affordability and supporting specific industries.

VAT Registration and Compliance

Businesses must register for VAT if their taxable turnover exceeds €15,600 in a 12-month period.

Voluntary registration is available for those below the threshold but planning to expand or requiring VAT on inputs.

Registered businesses must submit VAT returns quarterly. These returns detail the VAT charged and the VAT paid on business purchases (input VAT).

Failure to comply with registration or reporting requirements may result in penalties or fines imposed by Cyprus Tax Department.

Social Insurance Contributions

Social insurance contributions in Cyprus are mandatory for both employers and employees. These contributions fund benefits like pensions, unemployment, and healthcare. The rates and limits vary depending on the category of employment and income levels.

Employer and Employee Rates

Employers contribute 13.6% of an employee’s gross salary to social insurance. Employees contribute 8.3%. These rates apply to most full-time and part-time workers but exclude certain categories like self-employed individuals who have different arrangements.

The combined contribution is therefore 21.9% of the employee’s gross salary. Contributions are withheld monthly through payroll and submitted to the Social Insurance Services. This system ensures continuous coverage for social benefits.

Contribution Limits

The monthly insurable earnings cap is €4,924 (as of 2025). Contributions are only calculated up to this ceiling, meaning any salary over this limit is not subject to social insurance deductions.

For example, if an employee earns €6,000 monthly, contributions apply only to €4,924. This cap is reviewed periodically and adjusted to reflect economic conditions. It affects both employer and employee contributions equally.

Capital Gains Tax

Capital gains tax in Cyprus applies mainly to gains from the sale of immovable property located in Cyprus or shares in companies owning such property. It is important to understand the specific rates and the exemptions available to accurately assess tax liability.

Applicable Tax Rates

The standard capital gains tax rate in Cyprus is 20%. This rate applies to gains derived from the disposal of immovable property situated in Cyprus, including building plots.

Capital gains made from the sale of shares in companies owning immovable property located in Cyprus are also subject to the same 20% tax rate, but only on the portion of the gain related to the property.

The base amount exempt from capital gains tax is €17,086 per person, which is deducted before calculating the taxable gain.

Exemptions for Capital Gains

Certain disposals are exempt from capital gains tax in Cyprus. For example, the sale of shares traded on the Cyprus Stock Exchange or any other recognized stock exchange is exempt.

Gains from the disposal of immovable property that was acquired before 1980 are also exempt from this tax.

Additionally, transfers of property between close relatives, such as spouses, parents and children, are generally exempt.

A comprehensive list of exemptions is provided by the Cyprus tax authority, but these are the most commonly applied.

Dividend and Interest Taxation

Cyprus applies specific rates on dividends and interest income, which depend on the source and type of recipient. Exemptions and special rules also influence the effective tax burden.

Dividend Tax Rate

Dividends received by Cyprus tax residents from abroad are generally exempt from income tax. However, dividends paid by Cyprus companies to non-resident shareholders are usually exempt from withholding tax.

For Cyprus tax residents, dividend income is subject to a Special Defence Contribution (SDC) tax at a rate of 17%. This applies mainly if the recipient is an individual and the dividends come from Cyprus companies or foreign entities in non-exempt jurisdictions.

Companies and non-residents do not pay this contribution. Certain exemptions exist for dividends received from companies in EU countries or countries with which Cyprus has a double tax treaty.

Interest Tax Rate

Interest income is potentially subject to the SDC tax rate of 30% for Cyprus tax resident individuals. This applies to interest received from deposit accounts, bonds, and other debt instruments.

For non-residents and Cyprus companies, interest income is generally exempt from both income tax and withholding tax. Interest earned from foreign sources is not subject to SDC tax either.

Some exceptions exist for interest paid on government bonds or certain corporate bonds, which can be exempt or subject to reduced rates under specific conditions.

Other Relevant Taxes in Cyprus

Cyprus imposes several additional taxes beyond income tax that individuals and businesses should consider. These taxes affect property ownership and the transfer of assets through inheritance or gifts.

Immovable Property Tax

Immovable Property Tax (IPT) was abolished in Cyprus in 2017. Since then, property owners do not pay an annual tax on the value of their immovable property.

However, property transfer fees apply when buying or selling real estate. These fees range from 3% to 8% of the property’s market value, depending on the total amount.

Municipal taxes and special levies may also apply locally, but these vary by municipality and are generally lower compared to IPT.

Inheritance and Gift Tax

Cyprus abolished inheritance and gift tax in 2000. No tax is levied on assets transferred through inheritance or gifts.

This exemption applies to both residents and non-residents, making Cyprus favorable for estate planning and wealth transfers.

Although there is no direct tax, stamp duty may apply on specific transactions, such as the transfer of immovable property by inheritance or gift, calculated based on the property’s market value.

Recent Developments in Cyprus Tax Rates

Cyprus updated several tax regulations in early 2025. These changes aim to align the country’s tax framework with evolving international standards.

The corporate tax rate remains steady at 12.5%, one of the lowest in the EU. However, adjustments were made concerning tax incentives for new businesses.

Value-added tax (VAT) rates stayed the same but with revised thresholds for small enterprises. This targets better compliance and simplified administration.

The government introduced enhanced rules on personal income tax deductions. These revisions allow for greater transparency and limit potential abuses.

Overall, Cyprus focuses on maintaining competitiveness through stable core rates while refining specific rules. These recent developments provide clarity for businesses and individuals operating in the country.

Compliance and Reporting Obligations

Cyprus requires taxpayers to submit annual tax returns by July 31st of the year following the tax year. Failure to meet this deadline can result in penalties and interest charges.

Businesses must keep proper accounting records for at least six years. These records should clearly document all income, expenses, and transactions.

Value Added Tax (VAT) registered entities must file VAT returns quarterly. The deadlines for submission are typically 40 days after the end of each quarter.

Employers are responsible for reporting and withholding payroll taxes monthly. This includes social insurance contributions and income tax withheld from employees.

Non-residents with Cyprus-sourced income have specific filing requirements. They must submit returns for income generated within Cyprus, even if tax is withheld at source.

The tax authorities may conduct audits to verify compliance. They generally review submitted returns, supporting documents, and financial records.

Penalties apply for late filings, underreporting income, and failure to comply with reporting rules. These fines are proportional to the severity of the violation.