As far as Personal Income Tax is concerned, it is imposed on the worldwide income for residents in Cyprus. On the other hand, as far as non-residents are concerned, it can be seen that they are only taxed on certain types of income that are accrued or sourced in Cyprus.
Personal Income Taxation Rates
As far as Cyprus is concerned, it can be seen that the following tax rates are applicable for taxpaying entities:
- For an income between 0 EUR and 19,500 EUR: A tax rate of 0% is applicable.
- For an income between 19,501 EUR and 28,000 EUR: A tax rate of 20% is applicable. The accumulated tax amounts to 1700 EUR.
- For an income between 28,001 EUR and 36,300 EUR: A tax rate of 25% is applicable. The accumulated tax amounts to 3775 EUR.
- For an income between 36,301 EUR and 60,000 EUR: A tax rate of 30% is applicable. The accumulated tax amounts to 10,885 EUR.
- For an income between 60,001 EUR and above: A tax rate of 35% is applicable.
Special Defense Contribution
Special defense contribution is also levied on dividends, interest payments, as well as rental income that is earned by individuals that are Cyprus tax residents as well as domiciled in Cyprus for the same purpose.
Hence, for dividends, and interest income, a special defense contribution is levied at a rate of 17% and 30% respectively. This tax is paid as an alternate to personal income tax for these respective income heads. As far as rental income is concerned, it can be seen that a special defense contribution is applied at an effective rate of 2.25%. However, this is applied in addition to the personal income tax.
Taxation for Non-Residents
Non-tax residents are exempted from special defense contribution for all their income, regardless of this income being earned from Cyprus or from foreign sources. In the same manner, individuals who are tax residents, but are not domiciled in Cyprus are also exempted for purposes of special defense contribution.
Corporate Income Taxation in Cyprus
Corporate Income Taxation works in a similar manner as Personal Income Taxation. Cyprus resident companies are taxed on their global (worldwide) income. On the other hand, non-resident Cyprus companies are supposed to pay taxes on income that is sourced from within Cyprus as a result of a collaboration with an entity that is Cyprus based PE. Corporate Income Taxes are levied in Cyprus at a federal level. There are no local or provincial level taxes applicable in Cyprus.
The standard rate of Corporate Income Tax in Cyprus is 12.5%.
Special Defense Contribution
Special Defense Contribution is levied on companies that are resident companies in Cyprus, and have a non-exempted dividend income, or a passive interest income. This is only applicable on companies that are Cyprus tax residents, or Cyprus Permanent Establishment of non-resident Cyprus companies. This implies that non-resident companies in Cyprus, with non-Cyprus Permanent Establishment (PE) is also exempted from Special Defense Contribution.
As far as interest that is received from open-ended collective investment schemes is concerned, it is not subject to Special Defense Contribution because is it considered as an active interest income. Active Interest Income also includes interest that is received by company during the normal course of the business. Therefore, this interest income is taxed under corporate income tax rate, which is levied at 12.5%. However, if the interest income is classified as passive, then it is subject to Special Defense Contribution at the rate of 30%. If SDC is applied, then the (passive) interest income is not charged under the corporate income tax.
Gross Rental Income that is reduced by 25% is also subject to SDC at a rate of 3% in addition to Corporate Income Tax levied at a rate of 12.5%. However, this is accounted for after deducting the allowable expenses.
Ship owners, as well as other managers are supposed to pay tonnage taxes on net tonnage. They are supposed to pay tonnage tax in place of corporate income tax. Additionally, they are also exempted from paying taxes on dividends, or sale (and transfer) or their vehicles. This implies that in the case where tonnage tax is paid by companies, there are no other taxes levied in terms of corporate income tax.
There is no levy withholding tax levy on dividends, interest payments, and royalties that are paid to non-residents in Cyprus. However, withholding tax needs to be paid on royalties that are used earned within Cyprus. In this case, a withholding tax rate of 10% is applicable.
In the same manner, a 10% withholding tax is also applied on gross income and receipts that are derived by a non-resident individual in Cyprus.
Also, a 5% withholding tax is also applied on gross income that is derived from Cyprus from non-residents that do not have a local Permanent Establishment in regards to exploration or extraction.
Other Corporate Taxes in Cyprus
There are several other taxes that are levied in Cyprus. They are summarized below:
- Value Added Tax: The standard rate of value added tax in Cyprus is levied at a rate of 19%. There are also two reduced rates of 9% and 5% that are applied. These reduced rates are applied on food commodities, as well as companies that operate on grounds of hospitality and restaurant.
- Excise Taxes: Excise Taxes are also imposed on certain goods and services including transport, petroleum, tobacco, and alcohol.
- Capital Gains Tax: Capital Gains Tax is imposed at a rate of 20% that arises from disposal of any immovable property. A transfer fee is also supposed to be collected in this regard.
- Social Security Funds: Employers also have to contribute towards the social security fund of the employee. These rates range from 8.3% to 0.5%, depending on different categories of social security.
- Custom Duties: Custom Duties are also levied on imported goods and services in Cyprus. However, the rate varies across different categories.