Living in Cyprus: The Islands Favorable Tax System

Over the years, Cyprus’ favorable taxation system has become one of the underlying reasons why Cyprus is extremely attractive for international property buyers. Low corporate tax, relatively low-income tax, limited capital gains tax, and of course, no inheritance tax offers international property investors the living and operating conditions they cannot refuse.

When proceeding with a purchase of a property in Cyprus, the taxation system is certainly something to be aware of and a must-know aspect for those planning to work here and possibly even operate a business.

This article will walk you through the different tax terms offered by the Cyprus legislation while also highlighting the associated benefits. Let’s dive into it:

 

1. Cyprus Corporate Tax 

The Corporate Tax rate in Cyprus is notoriously known to be extremely attractive for both local and international businesses. At only 12.5%, it applies to all types of companies registered in Cyprus and is one of the lowest taxation rates in the entire European Union. Some of the world’s largest corporate names across varying industries have selected Cyprus to base their operations. This, in turn, has significantly boosted the island’s economy by fueling the job market, the tax income, and, most importantly, the real estate industry.

A particular area of Cyprus that has undergone a complete transformation over the last 10 years is Limassol. Its attractive coastal location and infrastructure were some of the additional benefits which made it the prime location selected by international companies. It is now seen as the modern business hub of Cyprus. This rapidly led to a significant increase in property and rental prices in the area, generating a very high return on investments for the property investors in this region.

 

2. Cyprus Personal Income Tax

If you are considering a move to Cyprus, the income tax system should be explored in greater detail. It is important to understand whether or not you will fall under the Cyprus income tax or be exempt and the associated tax rates. Based on the most recent Cyprus Tax Facts 2020 report by Delloite, here are some of the most frequently questioned items:

  • When do I have to pay income tax in Cyprus?

If you are an individual and a tax resident of Cyprus, you will be taxed on income accruing or arising from sources both within and outside the Republic. On the other hand, if you are not a tax resident of Cyprus, you will be taxed only on the income accruing and arising from sources within the Republic of Cyprus.

  • How do I know if I am a resident of Cyprus for taxation purposes?

The general rule of thumb to answer this question is the following. If you spend more than 183 days in a year on the island, you are considered a Cyprus tax resident. However, you may also be considered a tax resident if you spend less than 183 days in Cyprus but also satisfy all of the following criteria:

  1. You spend more than 183 days in any other country;
  2. You are not a tax resident of any other country;

iii. You spend at least 60 days in the Republic;

  1. You maintain a permanent home in the Republic that is either owned or rented;
  2. You carry on a business in the Republic, and you are employed in the Republic, or you hold an office in the Republic at any time during the tax year.
  • What are the personal income tax rates in Cyprus, and how are they calculated?  

As you can see, Cyprus’s personal income tax rates are also quite favorable when compared to other countries. There is also a range of approved deductibles that can further reduce your taxable income, which can be found in the full Deloitte report here.

If applicable, we also strongly advise that you check your local taxation laws regarding personal income tax in your country of nationality to ensure no conflicts between both legislations.

 

3. Cyprus Property VAT

A commonly asked question concerns the VAT tax payable for international property buyers and investors when purchasing a property in Cyprus. The Cyprus legislation offers two different VAT rates of 19% and 5%, subject to certain criteria. By default, a purchase of any building or residential property in Cyprus is subject to a standard VAT rate of 19%. However, a reduced rate of 5% may also be applied for beneficiaries who meet the following conditions:

  1. Use (or intend to use) of the residential property as your main and permanent place of residence.
  2. You must submit a relevant declaration to the Cyprus VAT Authorities.
  3. You must be a physical person of 18 years or above and a Cyprus citizen when applying for the reduced rate.

Some additional prerequisites must be fulfilled to be granted the reduced rate of 5%. For more information, please refer to the Ministry of Finance’s official information leaflet.

 

4. Other Cyprus Property Taxes

Aside from the VAT, several other taxes must be settled when procuring a Cyprus property worth mentioning. For example, completing a transfer of property ownership involves certain one-off tax payments such as the Transfer Fees and the Stamp Duty.

Transfer Fees – as a property buyer, you will have to pay this fee once the Deed of Purchase has been signed, and the associated rates will be calculated on the market value of the property at the date of purchase:

  • Value up to €85,430 will be charged 3%
  • A value between €85,431 – €170,860 will be charged 5%
  • Value over €170,861 will be charged 8%

Stamp Duty – is also a one-off payment which is applicable for any official document issued for the acquisition of the property in question and follows these rates:

  • 0% for amounts up to €5,000
  • 0.15% for amounts between €5,000 – €170,000
  • 0.2% for €170,000 and higher.

It is essential to note that stamp duty may never exceed €20,000 per agreement; however, penalties may apply if the amount due is not settled within 30 days from the purchase date.

 

Conclusion

As you can see, the entire Cyprus taxation system is designed to attract and offer favorable terms for both individuals and companies who elect to reside in Cyprus. The Cyprus taxation system is designed to be fair while also giving a strong boost to the local economy and greatly supports the island’s real estate industry. For many years this has facilitated property investors and buyers from across the world make a positive return on their investment, and we are confident that this trend will only continue to grow.

 

If you are currently searching for a property in Cyprus and have questions regarding the Cyprus taxation system, do not hesitate to contact our professional property consultants, who are highly trained to offer the highest level of professional advice on such matters.

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