How to Pay Taxes in Cyprus in 2023: Rates, Preferential Programs, and Business Benefits

 

About 1000 new companies are registered in Cyprus every year, half with foreign participation. The main reason for relocation is the low taxes in Cyprus, among the most favorable in Europe. Let’s talk about this in more detail.

The Republic of Cyprus is an island state which imposes a particular imprint on the development of the country’s economy. Surrounded by the sea, the island has no land connection with the continents, making the products' supply more expensive due to the exclusive sea and air connection. Therefore, the Cypriot authorities, in their strategic economic development planning, have focused on tourism, real estate, and business attraction through tax optimization.

Today, Cyprus is not offshore, but the taxes in the country and the conditions for doing business are among the most favorable in Europe, which allows attracting investors and entrepreneurs from abroad. The advantages are that the government has British law and one of the most developed and reliable banking systems.

Taxes in Cyprus are lower (for example, the income tax is only 12,5%), there are no taxes for residents (for example, on dividends or income from the sale of shares), and preferential programs are allowing IT companies and other businesses engaged in innovative development to pay tax only on 20% of profits from inventions. In comparison, the remaining 80% are not taxed. We’ll talk more about this below.

What taxes must be paid in Cyprus: rates for legal entities and individuals

In Cyprus, there are several taxes that businesses and individuals must pay. Listed below are the central taxes in Cyprus in 2023:

• Corporate income tax: the rate is 12,5% of corporate profits.
• Value Added Tax (VAT): the rate is 19% for most goods and services.
• On personal income: the rate depends on the amount of payment and the number of depositors (persons on whom financial responsibility is imposed).
• On real estate: the rates depend on the property’s market value and may vary from 0,1% to 0,6%.
• Inheritances and gifts: rates vary depending on the relationship between the testator and the heir.

Legal entity taxes

Legal entities registered in Cyprus are generally subject to the following taxes:

• Income tax is a tax on profits a legal entity earns during a tax period. The standard rate is 12,5%, making Cyprus one of Europe’s most attractive places for business.
• VAT is a tax on the sale of goods and services within the country and the European Union. The standard rate of VAT in Cyprus is 19%, although there are special rates for some goods and services.
• Property Tax is a tax on the ownership of property in Cyprus. The rate depends on the property’s value and ranges from 0,6% to 1,5%.
• Transfer Price Tax is a tax on transactions involving the movement of goods and services between related entities. This tax is part of the enhanced control of the tax authorities over cross-border transactions and can only be applied when the prices set between related parties differ from the market prices.
• A company registration fee is a compulsory charge levied when registering a new company in Cyprus. The amount of payment depends on the amount of the share capital of the company.
• Other taxes and fees — Cyprus also have several different taxes and fees, which may be applicable depending on the specific situation. These may include land tax, capital investment tax, etc.
• Employee Payroll Tax — The rate is progressive, depends on the salary size, and ranges from 0% to 35%.

Taxes of individuals

There are the following taxes for individuals in Cyprus:

• Personal Income Tax (Personal Income Tax) — the rate depends on the amount of income.
• Rental Income Tax (Rental Income Tax) — the rate is 3,5% of income derived from real estate rental.
• Capital Gains Tax (Capital Gains Tax) — the rate is 20% of the income received from the sale of real estate.
• Inheritance and Gift Tax (Inheritance Tax and Gift Tax) — rates vary depending on the degree of relationship between heirs/givers and the tax base.
• Value Added Tax (VAT) — 19%, with specific exemptions and exemptions.
• On investment income — the rate depends on the type of investment and can range from 0% to 20%.

It is important to note that Cyprus has a system of tax exemptions and double taxation treaties for individuals, which can significantly affect taxation in each particular case. Therefore, it is advisable to seek advice from a tax advisor or lawyer before making a tax decision.

Tax Rates in Cyprus in 2023

The rate of personal income tax is progressive, depends on the amount of income, and varies from 0% to 35%:

Amount of income	Rate
Up to 19,500 €	0%
From 19,501 € to 28,000 €	20%
From 28,001 € to 36,300 €	25%
From 36,301 € to 60,000 €	30%
Income over 60,001 €	35%

 

Property tax rates in Cyprus in 2023 are progressive, depending on the value of the property, and range from 0,6% to 1,5%:

Market value	Ставка
Up to 40,000 €	0,6%
From 40,001 € to 120,000 €	0,8%
From 120,001 € to 170,000 €	0,9%
From 170,001 € to 300,000 €	1,1%
From 300,001 € to 500,000 €	1,3%
Over 500,001 €	1,5%

It should be noted that these rates may vary depending on changes in tax laws in Cyprus. There are also several preferential tax regimes for specific categories of investors and entrepreneurs, such as IP Box and securities tax regimes, which can significantly reduce the tax burden on businesses and investments.

How to save on taxes: the preferential IP Box regime with a rate of 2,5%

The IP-Box preferential tax regime was introduced in Cyprus to encourage innovative research and development and was introduced in 2012. This regime allows companies to receive significant tax benefits on profits from qualified intellectual assets. Such assets include:

• patents and rights to inventions;
• trademarks and trade names;
• design and industrial designs;
• copyrights on software and literary works;
• requests to use technology, knowledge, and know-how, including confidential information and trade secrets;
• requests to use databases and information technologies.

The goal of the program is to attract research and development companies to the island, as well as to encourage investors and business people to invest in research and development in Cyprus. It is mainly about IT companies because it is easier for them to comply with the terms of preferential treatment.

Under the preferential tax regime of IP Box, companies registered as legal entities in Cyprus may receive income tax benefits related to qualifying intellectual assets. These benefits include a tax rate of 2,5% and the possibility of exemption from income tax on income derived from these assets. Thus, up to 80% of the profits from such investments are not taxed, and the remaining 20% are taxed at an overall rate of 12,5%, which recalculates to a rate of 2,5%.

To be eligible for IP Box benefits, companies must obtain special permission from the national intellectual property authority, which will determine whether the intellectual assets qualify for the IP Box program. Read more about IP Box in our article.

Also, for tax optimization purposes, please note that in Cyprus, income derived from securities is taxed at 0%, except for income derived from government bonds, which is taxed at 3%. It should be noted that there is no tax on gains from the sale of securities in Cyprus.

Cyprus tax residency: how to become a resident?

To pay taxes in Cyprus and become a tax resident, you have two procedures:

• 183-day rule;
• 60-day rule.

183 days

You must live on the island for 183 days to take advantage of this rule.

60 days

This is a favorable condition designed by the country’s government to simplify the procedure for foreigners to acquire tax residency.

To become a tax resident of Cyprus under the 60-day rule, the following requirements must be met:

• Spend at least 60 days in Cyprus in a calendar year. These days do not have to be continuous.
• Have a permanent place of residence in Cyprus. This can be a rented home or your own home.
• Do not spend more than 183 days per year in another country where you may also be considered a tax resident.
• Do not engage in business or work done for a foreign company in Cyprus.
• Register your tax residency in Cyprus by submitting documents proving your permanent residence on the island.
• Obtain a Tax Identification Number in Cyprus.

Once these requirements are met and you have registered your tax residency in Cyprus, you can file your personal income tax return by the local tax laws. Also note that Cyprus has a worldwide income-based taxation system, meaning that taxes will be levied not only on income earned in Cyprus but also on income earned abroad.

Please note that the Republic of Cyprus has signed double taxation agreements with 67 countries worldwide. However, to avoid paying taxes in two countries, you need to take the following steps:

• register with the Cyprus tax authorities;
• sign a statement that you will stay in Cyprus for at least 183 or 60 days;
• provide a copy of the employment contract, a document confirming the status of the owner of the company, property ownership documents, rental agreement;
• provide proof of receipt of foreign dividends or interest;
• submit past tax returns;
• all tax payments must be made;
• indicate for which country you are requesting the certificate;
• provide to the tax authorities of the country of citizenship a certificate of tax residency of Cyprus if a double taxation treaty is signed with your country.

Domicile and Non-Domicile statuses: what are the differences and advantages?

Domicile and Non-Domicile statuses in Cyprus refer to tax residency and have specific differences.

Domicile status implies that one is a tax resident of Cyprus and is obliged to pay tax on income earned anywhere in the world. However, if the payment is received in a country with which Cyprus has a double taxation treaty, Cyprus will not tax that income. Generally, Cyprus’s income taxes are higher than in many other countries.

Non-Domicile status, on the other hand, provides certain tax advantages, especially for foreign citizens. A person with this status is not required to pay tax on income received outside Cyprus, even if he is a tax resident in Cyprus. This makes Cyprus an attractive place for investors and entrepreneurs working abroad.

To become a Non-Domicile, you must meet certain conditions and rules set by Cypriot law. In general, to become a Non-Domicile in Cyprus, you must reside on the island for at least 60 or 183 days per year and demonstrate your intention to establish a permanent residence in Cyprus.

It is important to note that Domicile and Non-Domicile statuses may affect your tax liability and the amount of tax payments in Cyprus. Therefore, contacting professionals specializing in tax law for more information and advice is necessary.

Domicile

Domicile — a person born in Cyprus and/or has lived in Cyprus for 17 out of the last 20 years. This status provides certain financial advantages to tax residents in Cyprus who are considered «domiciled» on the island.

Firstly, residents with Domicile status are exempt from paying tax on income earned outside Cyprus, a country with which it has signed a double taxation treaty. If you are a tax resident in Cyprus with Domicile status, you will not be taxed on income earned abroad, even if that income is transferred to your account in the country.

Secondly, residents with Domicile status can benefit from inheritance and gift tax benefits. For example, if you inherit your property to your heirs who are also residents with Domicile status in Cyprus, they will be exempt from inheritance tax.

The third advantage is that residents can get tax benefits on income from investments made in Cyprus. This may include a reduced tax rate on investment income or a total tax exemption on income from certain investment products.

Domicile status can generally provide tax advantages to residents who consider Cyprus their home and have significant assets and connections on this island. However, obtaining this status requires appropriate legal services and financial investment, so it is necessary to contact competent professionals for advice and assistance.

Non-Domicile

Non-Domicile status is a tax status that can benefit those who live and work in Cyprus but are not Cyprus tax residents.

The main advantage of Non-Domicile status is that the taxation of income outside Cyprus is limited to 20% tax, while the tax on income in Cyprus can be as high as 35%. This means that if you have income earned outside of Cyprus, you can avoid the high tax rates inside the country, while remaining in full compliance with the Cyprus tax laws.

In addition, non-resident non-domiciled status may also have other advantages such as exemption from capital investment tax, exemption from inheritance and gift tax, and low tax on rental income from real estate.

To qualify as a Non-Domicile in Cyprus, you must spend no more than 183 days per year in Cyprus and not have Cyprus citizenship. However, for more precise information and professional tax advice, contacting a licensed tax advisor in Cyprus is recommended.

Tax optimization of business: what taxes can you not pay?

In Cyprus, several tax incentives and preferences for businesses can help in tax optimization. Some of the taxes that can be avoided or paid at a minimal rate include the following:

• Income tax: Cyprus has an income tax rate of 12,5%, one of the lowest in Europe. In addition, it is possible to use the double taxation system and enter into treaties to prevent double taxation with other countries.
• Tax on dividends: the entire amount of dividends is exempt from tax for subsidiaries that a parent company controls from the EU or a country with which Cyprus has the treaty to prevent double taxation. There is also a 17% tax on dividends for other companies.
• Personal Income Tax: Is levied on income over 19,500 € per year. However, for residents of Cyprus whose income is derived from sources outside the country, there is a status of Non-Domicile, which allows you not to pay tax on income received outside Cyprus.
• Property tax is up to 0,8% of a property’s assessed value. However, the tax can be reduced or exempted for some categories of property, such as new buildings.
• Value Added Tax (VAT): Cyprus has a VAT rate of 19%, but for some goods and services, the rate can be reduced to 5% or exempted.

To save on taxes, you must organize your business correctly in Cyprus, such as creating a holding structure or using tax residency for your employees. It is also essential to comply with tax laws and not violate them to avoid penalties and other difficulties.

Why move your business to Cyprus in 2023: advantages of the tax system

Moving a business to Cyprus can be a profitable decision for many companies due to the Cypriot tax system’s tax advantages.

Some of the advantages include the following:

• Low-income taxes of only 12,5% make Cyprus one of Europe’s most profitable countries for doing business.
• Tax incentives for investors: The Cypriot tax system provides a wide range of tax incentives, including tax vacations and income tax exemption for a certain period.
• Double Tax Treaties: Cyprus has more than 67 double tax treaties with other countries, facilitating international trade and investment.
• Attractive tax residency programs: several programs allow foreign investors to reduce their tax burden and gain access to other benefits.
• Low property taxes — it is only 0.1-0.6% per year, one of Europe’s lowest.

In addition, Cyprus has a well-developed financial infrastructure, favorable conditions for business activities, access to the European market, and highly qualified specialists in various fields. All this makes Cyprus an attractive location for business relocation in 2023. However, other factors, such as the cultural, economic, and legal characteristics of Cyprus, must also be considered to make a well-informed decision.

Also, read about why investors choose Paphos to live in. Learn about the best places, sights, and beaches and look at high-profit properties.

Moving to the island for the first time will necessarily be associated with rental housing issues. In this article, we have described in detail the features of a long-term lease, what to pay attention to when signing the contract, how to pay utilities, connect to home internet, and much more.

 

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