Tax in Cyprus

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Tax in Cyprus

Cyprus has very favourable tax rates particularly for the retired expatriate.

You are considered a resident for tax purposes in Cyprus if you reside here 183 days or more in each tax year.

Registering as a Taxpayer

On arrival in Cyprus you should visit your local immigration office to apply for your residence permit. The requirements change often but currently an EU citizen will need 4 passport size photographs, evidence of your Cyprus residence (rental agreement or contract of sale) and evidence that you have private medical insurance. There may be other requirements if you are a non-EU citizen. There are many agents, accountants and lawyers who, for a small fee, will arrange this for you.

Once you have your Residence Permit (fondly known for many years as your 'Pink Slip' but are now yellow!) you will be in a position to visit your local income tax office to register.

Once this has been achieved UK citizens will be able to complete the necessary UK Inland Revenue forms to have pension income and bank interest from the UK paid gross without the deduction of UK tax.

Citizens of other countries whether EU countries or non-EU countries should speak with the tax authority of that particular country to ascertain whether they too can obtain gross receipts of income from that country. Much will depend on whether Cyprus has a double taxation agreement with that country and the tax rules of the country in question.

• For information on Cyprus's Double Taxation Agreements see the Cyprus Inland Revenue website

Once you are eligible to become a taxpayer in Cyprus there is one of two tax bands that will be applied to your income.

As a working taxpayer the tax rates are as follows:

As a retired tax payer you will have the choice to come under the working tax payers' band as above or the retired tax payers band as follows:

To be eligible for the Retirees tax bands you must not undertake paid employment of any kind.

Other income such as bank interest and dividends from shares are exempt from income tax, however they are taxable by way of Cyprus Defence Levy (Special Contribution for Defence)

Cyprus Defence Levy

This tax is imposed on certain income earned by Cyprus tax residents.

The standard rate is 10% however should an individual's total income form all sources (that is, pension and bank interest) be less than €11,970 (CYP 7,000) then their defence levy liability would be charged at 3%. If such an individual holds bank deposits in Cyprus which have the 10% defence levy automatically deducted they can apply to have refund.

Foreign Tax already deducted can be credited against the defence tax liability.

Capital Gains Tax

Capital gains tax is imposed on gains from the disposal of immovable property at a rate of 20%. There are certain exemptions and indexation relief allowed.

There is no capital gains tax liability on the gains of investments.

Estate Duty (Inheritance Tax)

Estate Duty was abolished in Cyprus in January 2000.

UK expatriates be aware however that you are likely to be considered as UK domiciled by the UK Inland Revenue even if you have resided outside of the UK for some years. If your estate is worth more than GBP 275,000 (current nil rate band as of July 2005) you may wish to take advice in this regard. (This is a very detailed subject, please contact tax professionals for further information.)

Financial Affairs

Becoming an expatriate brings many changes with regards to your finances. It is advisable to consult with a financial adviser, who is authorised and regulated in Cyprus and who has experience in advising on these matters. 

UK Tax Payers

UK citizens may find that your UK bank allows you to keep the account but often you may not. In this event you will need to find either a UK bank that will allow you to have an account as a non UK resident or the offshore banks, many of which are branches or subsidiaries of the large UK banks, cater for the needs of expatriates.

Certain investments may need reviewing, and perhaps consolidation will be advised to take advantage of certain tax rules. Working expatriates who were contributing to Occupational and Personal Pension Schemes in the UK will not be able to continue contributing as a non-UK taxpayer. Another potentially large tax liability may be UK Inheritance Tax.

Non-UK Tax Payers

Citizens of other countries whether EU countries or non-EU countries may also face the same problems and should speak with the tax authority of that particular country to ascertain the situation.

Written by Vivian Nagel, MSI of Fraser Mackinlay (Middle East) Limited
P.O. Box 53919, Limassol 3318, Cyprus 
Tel: +357 25 580810, Mobile +357 99579149, Fax: + 357 25 875090 e-mail Web: www.frasermackinlay.com
Authorised by the Central Bank of Cyprus and a member of CIFSA
Copyright © 2005-2008 Vivian Nagal All Rights Reserved