An Overview of Tax Compliances in Cyprus

Companies managed and controlled in Cyprus are considered tax residents in Cyprus and are subject to Tax on worldwide Income. Cyprus has also planned to introduce a rule according to which companies incorporated in Cyprus will be recognized as tax residents of the country. Cyprus companies are taxed at the rate of 12.5%. Personal tax ranges from 20-35%. VAT is paid on the sale of goods and services and on purchasing goods and services from EU countries. Three tax rates are prevalent under VAT: the introductory rate is 19%, and the reduced rate provided is 9% and 5%.

Table of Contents

Different Types of Taxes in Cyprus

Personal Tax

Personal Income is taxed as follows:

Capital Gains and proceeds from the sale of securities, such as stocks, bonds, etc, are not subject to income tax. If the remuneration of a non-tax resident of Cyprus exceeds EUR 100,000 per year, then 50% of the Income from employment will be exempt from income tax for 10 years. However, the individual should be a non-tax resident before starting employment.

Special Defence Contribution (SDC)

Personal Taxes

Special Defence Contribution is levied only on persons who are both tax residents and domiciled in Cyprus. SDC is charged in the following manner:

• 17% on dividends;
• 30% on interest, other than interest from corporate and Cypriot government bonds for which the tax rate is 3%;
• 2.25% on rental Income.

No personal income tax is charged on the Income taxed by the SDC other than rental Income.

Corporate Taxes

SDC is paid on the following types of Income:

• 30% on "passive" interest. Such interest is earned on loans issued by companies; interest excludes interest earned by collective investment funds and interest earned in the ordinary course of business of the company. The interest is only subject to corporate Tax.
• 17% on dividends if :
• More than 50% of the Income of the foreign company paying the dividend is investment income; and
• The foreign corporation tax is significantly lower than the Cyprus tax
• Rental Income is taxed at the rate of 2.25%.

  Capital Gains Tax (CGT)

This Tax is levied on immovable property in Cyprus and on shares in non-listed companies that own immovable property in Cyprus at the rate of 20%.

Corporation Tax

Cyprus companies are considered tax residents in Cyprus if they are managed and controlled from Cyprus and are taxed on their worldwide Income. Cyprus has also planned to introduce the rule to treat companies incorporated in Cyprus as tax residents of the country. All Cyprus companies are taxed at the rate of 12.5%. However, the following incomes are exempt from corporation tax in Cyprus:

• Dividends only if they are not deductible for corporation tax purposes by the foreign company distributing them.
• Profits arising from the disposal of securities, including stocks, stock indices on securities, bonds, and options on them.
• Profits arising from overseas permanent establishments that are not subject to corporation tax unless
• More than 50% of the permanent establishment’s Income is investment income; and
• The overseas Income is significantly lower than that in Cyprus.

  Value-Added Tax

Value-Added Tax (VAT) is levied on the sale of goods and services, purchase of goods and services from EU countries, and import of goods into Cyprus from outside the EU. VAT is levied at three rates in Cyprus: the standard rate of 19% and the reduced rates of 9% and 5%, applicable in some instances. VAT registration becomes compulsory when the total sale of goods or services in Cyprus exceeds EUR 15,600 in 12 months. In certain other cases, VAT registration may be necessary even if the threshold is not met.

Withholding Tax

Cyprus levies withholding Tax only where royalties are paid for rights used in Cyprus. Withholding Tax is levied on 10% of royalties, out of which 5% is for film rights of royalties and may be reduced under Double Tax Treaties or relevant EU Directive. Cyprus may levy withholding Tax at the rate of:

• 10% on technical services performed in Cyprus by non-residents;
• 10% towards remuneration for non-resident individuals performing professional activities in Cyprus;
• 5% towards remuneration for the development of continental shelf.

Stamp Duty

Stamp Duty is payable on a document if it relates to property in Cyprus or an act to be performed or done in Cyprus. Stamp Duty is levied at varying rates depending upon the contract amount, but it cannot exceed EUR 20,000 per document. 

Capital Tax

A capital tax of EUR 105 and EUR 20 is payable upon the formation of a new company and upon the issue of shares, respectively.

Social Security Contributions

Employers have to make contributions to the following funds at the following rates:

Employees also make contributions to the Social Insurance Fund at 8.3% and to Health Insurance Fund at 2.65%. There are limits to the sum of contributions which are updated periodically.

Transfer Tax

Transfer Tax is levied on the transfer of immovable property at a rate ranging from 3% to 8% of the market value of the property as estimated by the Land Registry department.

Time Limit for preparing and filing tax returns

Corporate Income Tax

An income tax return must be submitted to the Tax Department within 12 months from the end of the reporting period, which is by 31^st December of the year following the reporting period. This period is extended by 3 months if the returns are filed electronically.

Special Defence Contribution

Special Defence Contribution is charged separately from income tax, although calculations of this Tax must be included in the tax return IR4. A separate tax return has to be filed if the company pays or receives Income liable to this Tax. The Tax must be withheld if there is a chargeable income arising from activities between two Cyprus resident companies, and the tax return must be completed within a calendar month succeeding the month in which the chargeable Income arises.

For Foreign Income of Cyprus residents, the tax return must be filed with the Tax Department by 31^st December of the year in which the company had chargeable Income. An exception to this is the rental Income generated by the rent of a property. For rental Income, the return must be filed by 30^th June and 31^st December of the year in which the company had chargeable Income.

VAT

The VAT reporting period is 3 months which is decided by the Tax Department. A company must prepare tax returns and pay Tax within 40 days from the end of the 3-month reporting period. If a company buys or sells goods to and from companies registered in the EU member state, then INTRASTAT data has to be filed. An INTRASTAT return must be filed monthly within 10 days from the end of each month. However, if a company buys or sells goods as well as services to and from companies registered in other EU member states, then VIES information is filed within a month. VIES return has to be submitted within 15 days from the end of the month in which the sale was made.

Late filing of tax return

Corporate Income Tax

A company is liable to a fine of 5% of the amount of Tax due in case of late filing of tax returns. The fine is levied, and action is taken against the company directors who fail to fulfill their fines. Tax must be paid by the 31^st Jut of the year succeeding the reporting year. Penalty interest is levied in case of late payment of Tax.

Special Defence Contribution

Late filing of tax returns and late payment of Tax carries the following penalties:

• Penalty interest of 3.5% per annum on the Tax due;
• A fine of EUR 100 for late filing of SDC return;
• A fine of 5% on the Tax due.

Value-Added Tax

Late filing of a tax return and late payment of Tax carries the following penalties:

The penalty is also levied for late registration or deregistration from VAT and non-compliance with the reverse charge mechanism.