December 22, 2024
Samuel Aziz Boubaous
Capital Gains Tax in Cyprus for Non-Residents: System Overview
Cyprus's tax system is one of the main reasons global investors and entrepreneurs consider this EU country for company setup, residency, and tax planning. What makes it so appealing? What main taxes will residents and non-residents face, and what benefits can they expect? Understanding these taxes and the available incentives should be a top priority in settling a successful business or personal financial plan in Cyprus. From income tax to VAT and corporate tax, knowing the system helps you make the most of Cyprus's opportunities.
Cyprus today has a high reputation among global investors and entrepreneurs who want to benefit from its business-friendly environment and attractive tax incentives. Taxation is key to making the most of Cyprus's advantages when starting business operations, opening a company, or seeking residency in the country. Understanding the country's tax system allows you to maximize benefits while ensuring compliance with local regulations.
What You Need to Know About Cyprus Tax Residency
Becoming a tax resident in Cyprus means you’ll be taxed on your worldwide income. However, Cyprus also provides non-tax residents with great opportunities by taxing only the income generated within the country. One of the key benefits is the country’s extensive network of tax treaties, which eliminates double taxation on income such as dividends, interest, and royalties, making it ideal for cross-border transactions.Let’s look at how to qualify as a tax resident and what this means for your tax obligations.
How to Qualify for Tax Residency in Cyprus
To qualify as a tax resident, you must meet one of the following conditions:
- Stay in Cyprus for at least 183 days during the tax year.
- Alternatively, qualify under the 60-day Rule, where you spend at least 60 days in Cyprus, maintain a registered office address, and engage in business or employment in the country.
Requirements for the 60-Day Rule
- You must not reside in another country for more than 183 days in the same year.
- Are not subject to taxes from any other country during this period.
- Maintain a stable economic activity or employment in Cyprus or own residential property.
Cyprus Taxation for Non-Residents
Non-tax residents in Cyprus are only taxed on income generated within the country, allowing foreign entrepreneurs to take advantage of the territorial tax system without being subject to taxation on their worldwide income.
Key Taxes in Cyprus for Residents and Non-Residents
→ Income Tax System
Cyprus applies a progressive income tax system to residents, ranging from 20% to 35% placed on the annual income. Below is a breakdown of the amount of taxes on income:
| Income Level (€) | Tax Rate (%) |
| Up to €19,500 | 0% |
| €28,001 - €36,300 | 20% |
| €28,001 - €36,300 | 25% |
| €36,301 - €60,000 | 30% |
| Above €60,001 | 35% |
Retirees benefit from a reduced personal income tax rate of 5% on pension incomes exceeding €3,420 per month.
→ Corporate Tax System
Cyprus has one of Europe's lowest corporate tax rates at 12.5% on annual income. This applies to the net profits of companies registered in Cyprus. Foreign taxes are not included, unless they are remitted to Cyprus, making it attractive for international business operations.
→ Value Added Tax (VAT) tax System
Cyprus imposes a 19% VAT on goods and services. However, specific sectors benefit from reduced rates:
| Service | VAT Rate (%) |
| HORECA (hotel, restaurant, café services) | 9% |
| Renovation and repairs of residential properties | 5% |
→ Property Tax System
The country applies transfer tax when purchasing property located in Cyprus. The Land Registry assesses the property’s market value, applying the following transfer fees:
| Property Value (€) | Transfer Fee (%) |
| Up to €85,000 | 3% |
| €85,001 - €170,000 | 5% |
| Above €170,000 | 8% |
Additionally, stamp duty is applied as follows:
| Purchase Amount (€) | Stamp Duty Rate (%) |
| Up to €5,000 | 0% |
| €5,001 - €170,000 | 0.15% |
| Above €170,000 | 0.2% |
Municipal taxes on property vary depending on the location.
→ Capital Gains Tax (CGT) System
There is a 20% capital gains tax in Cyprus for Non-residents, which is levied on profits from selling immovable property in Cyprus or shares of companies that own real estate. This tax applies only if the disposal is not subject to income tax, offering flexibility for investors. Both short-term capital gains and long-term capital gains are subject to these capital gains tax rates.
Tax Exemptions in Cyprus for Non-Residents
Cyprus offers significant tax exemptions for non-residents and non-domiciled individuals. Here are the top exemptions:
- Dividend Income Exemption: Dividends received from foreign subsidiaries are exempt from corporate tax, making Cyprus ideal for holding companies.
- Capital Gains Tax Exemption: Profits from the sale of securities (shares, bonds) are exempt from capital gains tax.
- No Withholding Tax: No withholding tax on dividends, interest, or royalties paid to non-residents.
- Special Defense Contribution (SDC) Exemption: Non-domiciled individuals are exempt from SDC, which applies to passive income like dividends and interest.
These exemptions are crucial for businesses and individuals aiming to reduce their tax liability in Cyprus.
Strategies for Reducing Tax Liability in Cyprus
Cyprus offers various strategies to optimize tax efficiency and reduce liabilities:
- Non-Domiciled Status
Non-domiciled individuals benefit from tax exemptions on dividends and interest, helping them reduce their tax burden significantly.
- IP Box Regime
The IP Box Regime offers an 80% tax exemption on profits from intellectual property (IP), reducing the effective tax rate to 2.5% on IP-related income.
- Notional Interest Deduction (NID)
Companies can benefit from NID, which allows them to deduct notional interest on new equity and reduce taxable income.
- Shipping Tax System
The tonnage tax system allows shipping companies to pay taxes based on their fleet’s tonnage rather than their income, lowering their overall tax rates.
How to Obtain Permanent Residency in Cyprus by Investment
Cyprus offers a residency by investment program for foreign entrepreneurs and individuals. By investing at least €300,000 in real estate or local companies, you can gain permanent residency and access to Cyprus’s tax residency benefits.
Key Investment Options:
- Residential Property: Invest in one or two properties worth a minimum of €300,000. VAT for personal use is 5%.
- Commercial Property: You can also invest in commercial real estate or Cypriot company shares.
After five years of residency, you can apply for Cyprus citizenship, opening the door to European citizenship and greater opportunities.
Frequently Asked Questions
1. Does Cyprus have low taxes
Yes, Cyprus offers one of Europe's lowest corporate tax rates at 12.5%, and numerous tax exemptions make it attractive for businesses and individuals.
2. Do expats pay taxes in Cyprus
Yes, tax residents in Cyprus pay taxes on their worldwide income, while non-tax residents are taxed only on Cyprus-sourced income.
3. What is the income tax rate in Cyprus
The income tax rate for residents ranges from 20% to 35%. Retirees enjoy a reduced tax rate of 5% on pensions over €3,420 per month.
4. Who pays income tax in Cyprus
Tax residents (both individuals and companies) pay income tax in Cyprus, while non-tax residents only pay taxes on income sourced from within Cyprus.
Wealth Consulting: Your Partner in Cyprus Tax Planning
Wealth Consulting covers all aspects of company formation, tax planning, and residency solutions in Cyprus. Whether you're looking for assistance with company formation in Cyprus, need guidance on capital gains tax exemptions for seniors, or are exploring Cyprus residency by investment, our team offers fully tailored solutions to help you maximize your benefits and streamline the process.
The process of establishing a company in Cyprus is straightforward, and with the right support, it typically takes 2-4 weeks to complete. However, additional steps, such as opening a Cyprus bank account, may take longer due to rigorous due diligence procedures, sometimes requiring several months.
To simplify this process and avoid delays, seeking expert guidance is essential. Wealth Consulting specializes in ensuring a smooth experience for entrepreneurs and investors through comprehensive assistance with company setup, tax planning, and residency options—whether through investment programs or corporate structures.
Contact us today to schedule your free consultation and learn how we can help you succeed in Cyprus.
