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Taxes in Cyprus

Overview

Cyprus has many double taxation agreements for the avoidance of paying tax twice, one of which is with the U.K. Cyprus Tax Legislation has undergone major reforms upon joining the E.U. and as a result, with effect from 1st January 2006 the following is correct;

Corporation Tax

Corporation tax is only payable by resident companies (place of management and control in Cyprus) on their taxable worldwide income after the deduction of the allowable expenses. Even though the fiscal year most commonly used is the calendar year alternative year-ends mat be used.

The corporate tax rate is 10% applicable to income from all sources including rental income, which is taxed the normal way, including interest, the wear and tear allowance (W&T) from the buildings rented. The W&T is at 3% for commercial buildings and 4% for hotels, factories and agricultural buildings.

For Investors the correct vehicle for property purchase is a limited company utilizing personal relief, low corporate tax and dividend payments.

Income Tax

Income tax is the tax payable by resident individuals in the Republic. Resident individual is any individual who resides (stays) in the Republic for an aggregate of 183 days in the year of assessment.

Rental income for individuals is taxable on the legal owner of the property. For the calculation of tax due from rental income the following deductions are allowed

- Deduction
- Allowance from gross rents of buildings (not land) 20% of gross rents
- Wear and tear of building 3%
- Interest regarding the building rented All

Capital Gains Tax

Capital Gains Tax (CGT) is levied on gains arising from the disposal of land and buildings, not held as trading assets, situated in Cyprus and private companies shares whose assets include immovable property in Cyprus. The CGT rate is 20%. The first €85,430 (CY£50,000) is exempt for a residential home if lived in for more then five years.  The profits from dealing in securities are exempt from CGT.

Immovable Property Tax

The Immovable Property tax is levied on companies and individuals that own immovable property with value in excess of €170,860 (CY£100,000) at 1st January 1980 market values. The rates of immovable property are:

2.5% up to €427,150 (CY£250,000)
3.5% over €427,150 (CY£250,000)
4% over €854,300 (CY£500,000)

Social Security

The Republic of Cyprus has a comprehensive social security scheme, which is compulsory for everyone who is working in Cyprus as an employee or as a self-employed person.

The scheme covers sickness, maternity, disability and unemployment benefits, retirement pensions and an annual paid vacation fund.

Employees are required to contribute 16.6% of their earnings, and the self-employed 15.6% of their earnings to the social security fund. However, these contributions are split between the insured employee, their employer and the state in the case of employees, and between the insured and the state in the case of self-employed people.

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