The Cypriot republic, a member of the European Union since 2004 and of the Euro area since 2008, after being heavily hit by the economic crisis of the first half of the decade and by the effects of the Greek one, has experienced a period of strong recovery. The economy is mainly based on services and in particular on tourism, navigation and finance. With the entry into the European Union in 2004, the tax system was profoundly reformed with the adjustment of income tax to EU standards and the introduction of VAT.

Income taxes of individuals

The tax affects the income of individuals from the following sources:

• business operation;

• dividends and interest;

• dependent or self-employed work, pensions;

• intellectual property rights.

For residents, income generated in the State and abroad is taxed, while for non-residents only income from Cypriot sources is taxed. To be considered a resident, one must remain in the state for at least 183 days during a tax year or establish the center of his/her vital interests in Cyprus. You can be considered a resident even if, even if you spend less than 183 days in Cyprus, you meet the following conditions:

• no more than 183 days are spent in any other country,

• you are not fiscally resident in other countries,

• you spend at least 60 days in the country,

• you have a home in the country (owned or rented) and you carry out an economic activity or work as an employee throughout the year.

The sums received as severance indemnities, insurance reimbursements, interests not linked to entrepreneurial activities and dividends are exempt from taxation. The main deductions from taxable income are instead:

• interest for the acquisition of fixed assets used in economic activities and properties to be leased,

• maintenance costs of rented buildings (up to 20% of the rent),

• donations to recognized organizations,

• premiums for life insurance and social security contributions up to one sixth of taxable income,

• deductions for dependent children,

• registration in professional registers, up to 3,417 euros for people with disabilities.

The Cypriot tax system is progressive based on income brackets with increasing tax rates.
 

The tax rates for income brackets are:

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0% up to 19,500 Euros

20% from 19,501 Euros to 28,000 Euros

25% from 28.001 Euros to 36.300 Euros

30% 36,301 Euros to 60,000 Euros

35% over 60.001 Euros

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Retirement income from abroad is taxed at a fixed rate of 5% on the amount exceeding 3,420 euros. Survivors' pensions, at the choice of the taxpayer, are taxed at a rate of 20% on the amount exceeding 19,500 euros or with the ordinary regime.
Profits from the sale of real estate in Cyprus or shares of unlisted companies owning real estate are taxed at 20%. The capital gain is calculated by revaluing the purchase price for a given index. A portion of this income, different for each type of property, is exempt from taxation.

Passive income (interest, rents, dividends, etc.) received by residents are subject to a special defense contribution which is 17% for dividends, 30% for interest and 3% for interest from bonds of public funds, units of approved investment funds or pension funds and for leases. The interests received in the ordinary management of the business are exempt from the defense contribution. If a person has an income of less than 12,000 euros, he is entitled to reimbursement of the contribution paid in excess of 3% of the interest received. Non-residents are excluded from the contribution.
Losses from entrepreneurial activity can be carried forward over a period of 5 years.
Particular tax benefits are granted to employees who are not resident in Cyprus but who move there following the beginning of the employment relationship. In particular, an exemption of 20% of income up to € 8,550 per year is allowed for a period of five years. This exemption is increased to 50% and for a period of 10 years for high-income workers (over one hundred thousand euros).
The collection of income tax provides for a system of withholding and monthly payment by employers of the income paid to their employees. On the other hand, a self-employed worker must submit a provisional tax return on 1 August and make the payment of taxes in three installments, the first at the time of submitting this return, the second on September 30 and the last on December 31. The definitive declaration must instead be submitted on April 30 of the following year. Late payments within the semester are increased by 5% interest, while if the delay exceeds six months the rate is 9%.

Corporate income tax
Companies managed and controlled locally are resident, even if they are incorporated abroad, and are taxed on income wherever they are produced. Non-resident companies remain subject to Cypriot taxation only for the part of the income produced in the territory of the State. The ordinary rate is set at 12.5%, up from the previous 10%. National, EU and (under certain conditions) shipping companies of other countries are exempt from income tax but are subject to the tonnage tax.
Dividends received by resident or non-resident companies, as well as profits produced by foreign permanent establishments, are totally exempt. Capital gains deriving from the sale of shareholdings are exempt while those on real estate properties are taxed at 20%. This tax is also applied to capital gains on shareholdings of companies whose assets are at least half of properties but in this case the tax base relates only to the real estate part.
As regards the determination of taxable income, the following rules apply, among others: losses can be set off for five years; transactions between related parties are controlled by the financial administration which has the power to restore their value at the market price; part of the cost of fixed assets can be deducted as expenses for the year, according to annual depreciation percentages (for example, 3% for commercial construction, 20% for computers, 33% for software) required by law . Income may also be determined on a consolidated basis, provided that the consolidated companies are held for at least 75%, directly or indirectly. In the context of the consolidation, the losses of one company can be used by another only with reference to those of the current year. As a result of the rules to combat the undercapitalization of companies, the limit on recourse to investment financing is set at 70%.
For insurance companies, a minimum level of taxation equal to 1.5% of the gross amount of insurance premiums is envisaged.
The same applies to companies as regards the defense contribution with the exception of dividends for which the contribution is not required if they come from a resident company unless these derive from old profits that are more than four years old. 
In the absence of agreements against double taxation, taxes paid abroad by resident companies give the right to a tax credit (for a value not exceeding what would have been paid in the country for a similar income) only in the presence of reciprocity of treatment of Cypriot companies, otherwise they can only be deducted from income as expenses.

Value Added Tax
Value added tax is applied on the transfer of goods and services in the State, as well as on the imports of goods, while it is not payable on exports. If the annual turnover does not exceed 15,600 euros, there is no liability, while exceeding it involves the obligation to request the attribution of the VAT number and to submit quarterly returns. The ordinary rate, from January 2014 is 19%. The reduced rate for catering, hotel reception services and transport of people by land or sea within the country is 9%, while that for food, pharmaceuticals, books and newspapers and building renovations (under certain conditions) is 5%. Property leases, financial and insurance services, medical and educational services are exempt.

The real estate tax
The real estate tax was abolished as of January 2017.
The transfer of real estate properties is instead taxed with a system of brackets according to the value of the property with rates between 3% and 8% of the market value. The tax is not due if the transaction is carried out as part of a company restructuring operation or is subject to VAT.
The rates are much lower in the case of donations to relatives, in the case of a spouse or other relative within the third degree the rate is 0.1%, while donations to children are exempt. For transfers to a trust, a flat tax of 50 euros is paid.

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Social security contributions
Starting from January 1, 2019, the employees' own contribution to the state-administered social security fund is equal to 8.3% of their gross salary, with a maximum annual ceiling on insurable emoluments from January 1, 2021 of € 57,408. The 8.3% rate applies to both worker and employer until December 31, 2023. Thereafter, the rate will increase every five years to reach 10.7% on January 1, 2039.

From 1 January 2019, the contributions of self-employed workers are 15.6% of their income (14.6% from 2014 to 2018). Thereafter, the rate will increase every five years until it reaches 20.4% starting from January 1, 2039. The amount of contributions is subject to a minimum and a maximum limit, depending on the profession or activity of the worker. These limits are set on an annual basis.

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General Health System (GHS)
Under the General Health System Act of 2001 (89 (I) / 2001) and subsequent amendments of 2017, a GHS has been introduced in Cyprus aimed at providing the population with equal access to a holistic health system. Patients will have the option to select a healthcare provider from the public and private healthcare sector.

Contributions related to the implementation of the GHS are due starting from ​​1 ° March 2019 and have been increased from 1 March 2020 and, depending on the category, vary from a minimum of 2.65% to a maximum of 4.7%.

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