Cyprus attracts businessmen and entrepreneurs with a loyal taxation system. Those who choose to live and relax here are drawn by the sunny climate, variety of available entertainment, and investment prospects of local real estate. Even if you do not plan to do business in Cyprus but just want to purchase a house, villa, apartment, or penthouse in one of the cities of the Republic, you will still have to face tax deductions. Here we will clarify the specifics of the local tax system, including details on the main types of mandatory fees.
Cyprus taxes for businessmen and entrepreneurs
Taxes in the Republic of Cyprus are pretty low. This becomes a weighty argument in favor of starting your own business in this European country. The favorable geographic location makes it possible to successfully engage in international activities, which also opens up attractive prospects for businessmen. Many of them would like to open their own company in Cyprus to obtain EU citizenship. The country has a program under which an investor who has invested in the local economy more than EUR 2,000,000 can obtain a local passport within 6 months without losing the residence of his or her country.
Income tax
Cyprus income tax applies to both individuals and companies. The latter pay 12.5% of their profits. The following types of remuneration are excluded from the calculation of Cyprus income tax:
- dividend income;
- profit received from the sale of securities;
- income earned from the difference in exchange rates;
- profit received as a result of loan restructuring.
When calculating income tax in Cyprus, you can deduct expenses incurred directly to generate income (acquisition of assets, maintenance of buildings, etc.).
If the company is a tax resident of the Republic, that is, its control and management are carried out within the state, all profits received from sources not only in Cyprus, but also abroad, are taken into account when calculating fees. In other cases, only those incomes received directly in the Republic are subject to taxation.
Capital gains tax
This is a special property tax in Cyprus that obliges companies to pay 20% of the profits generated from the following transactions.
1. Sale of real estate located on the territory of the Republic.
2. Sale of the company's shares if they are not listed on the stock exchange on behalf of the owner.
3. Sale of shares in organizations that own immovable property in Cyprus and receive at least 50% of their market value.
When calculating this property tax in Cyprus, called capital gains tax, property donated to a spouse, charitable organization, shareholders or inherited by third parties are not taken into account.
Treaty on avoidance of double taxation
The Republic of Cyprus has entered into a special treaty with a number of countries, according to which local tax residents are exempted from accounting for income received from foreign companies. This helps to avoid double taxation. The list of treaty parties includes more than 60 states, including Russia. According to this treaty, the payment of dividends in favor of residents of Cyprus will be 5-10%, and the loan rate will be 0%.
Value added tax (VAT)
Services such as education, renting real estate for living, medical assistance, and financial and insurance services are exempt from VAT in Cyprus. Otherwise, all works and goods sold in Cyprus are subject to 19% VAT. 9% VAT applies to cafes, restaurants, hotels, companies conducting passenger and luggage transportation. If an organization is engaged in the production and sale of food, drinks, construction or renovation of houses, hairdressing services or the sale of books, newspapers, magazines, tickets for cultural and sports events, it is subject to 5% VAT in Cyprus.
Cyprus taxes for individuals
Individuals are also required to make contributions to the Treasury. The current taxes in Cyprus mainly affect the income of individuals and the transfer of property into ownership.
Individual income tax
Cyprus tax residents pay income taxes on any type of income received from sources in the Republic and abroad. Non-residents pay taxes on profits earned only from sources in Cyprus.
Tax residents are persons who stay in Cyprus for at least 183 days a year, who work in the Republic for hire or in their own business, as well as who have a permanent place of residence (purchased or rented). If these conditions are not met, then the individual ceases to be considered a resident for the current tax year.
The income tax rate in Cyprus is calculated based on the level of profit. 0% tax applies to profit up to EUR 19,500. If you receive income in the range from EUR 19,501 to EUR 28,000, the tax will be 20%. 25% tax applies to those who make up to EUR 36,300, 30% tax applies to income recipients with a level of EUR 36,301 to EUR 60,000.
There are also some incentives that help reduce taxation in Cyprus. For example, dividend income is exempt from income tax, and if the remuneration was received for work provided by a non-resident of Cyprus, the tax can be reduced by 20% or 50% depending on the level of the taxpayer's annual income.
Fees for real estate transfer
When purchasing real estate in Cyprus, the new owner shall make a special contribution to the Department of Lands and Topography. This real estate tax in Cyprus is calculated based on its market value at the time of sale and ranges from 3% to 8%. You will also have to pay for the services of this Department. Their cost ranges from EUR 2,550 to EUR 6,800.
Real estate transferred to the owner as part of restructuring or reorganization, as well as in the event of the debtor's bankruptcy and the real estate transfer to the creditor, are exempt from the so-called one-time disposal tax in Cyprus. This tax is not paid when concluding a transaction subject to VAT.
Stamp duty
This kind of tax in Cyprus applies to the execution of documents related to any transactions. The amount of stamp duty is calculated on the basis of the nature of the documents drafted and can vary between EUR 0.07-80.
