The attractive tax system of Cyprus, together with its accession to the EU, has helped the island nation establish itself as an ideal holding company location. There are many reasons why over 17,000 foreign companies (named International Business Companies IBC’s) currently use Cyprus.
MAIN ADVANTAGES OF TAXATION SYSTEM
- Cyprus’ current tax system is in full compliance with the EU and OECD.
- Taxable profits of all Cypriot companies are taxed at the rate of 12.5% (however, effective corporate tax rate is NIL for most international transactions through Cyprus).
- Extensive double tax treaty network (Cyprus has double taxation treaties with Austria, Bulgaria, Canada, the People's Republic of China, the Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Norway, Poland, Romania, Russia, (Armenia, Belarus, Kurdistan, Moldova, Tajikistan, Turkmenistan and Ukraine) Slovakia, South Africa, Sweden, Syria, the United Kingdom, the United States of America, the former Yugoslavia (Serbia and Montenegro) and other countries.
- Gains from the disposal of securities are tax exempt.
- Profits earned from a permanent establishment abroad are fully exempt from corporation tax (under certain conditions).
- Dividend income received in Cyprus from a foreign corporation is wholly exempt from taxes in Cyprus (under certain conditions).
- Interest income earned from trading activities, including interest which is closely related with trading activities, is subject to income tax of 12.5%.
- No withholding tax on dividends and interest paid to non-residents of Cyprus, as well as no withholding tax on royalties arising from sources outside Cyprus.
- Group relief provisions for companies resident in Cyprus.
- Capital gains are not subject to tax, except on sale of immovable property situated in Cyprus.
- No import tax: European citizens who become permanent residents in Cyprus and who owned and used a car in their country for at least six months can bring it into Cyprus and they will not pay any import tax.
Furniture can be imported free of any taxes by Europeans or non-Europeans who become permanent residents, provided that it is for personal use and is not brand new.
INCOME TAX RATES
| Tax % | Tax Base (EUR) |
| 0% | Up to 19,500 |
| 20% | 19,501-28,000 |
| 25% | 28,001-36,300 |
| 30% | 36,301-60,000 |
| 35% | 60,001 and over |
Retirees who become residents in Cyprus will be taxed on their pensions from abroad at the rate of 5% per annum, while an annual exception is granted for the first €3,420.
IMMOVABLE PROPERTY TAX IS ABOLISHED AS OF 1 JANUARY, 2017
The annual immovable property tax is calculated on the market value of the property as of 1st January 1980.
Property Value 01.01.1980 | Property Tax Rates |
| First €40,000* | 0.6% |
| Next €80,000 | 0.8% |
| Next €50,000 | 0.9% |
| Next €130,000 | 1.1% |
| Next €200,000 | 1.3% |
| Next €300,000 | 1.5% |
| Next €2,200,000 | 1.7% |
| Excess over €3 million | 1.9% |
*Property owners whose property has a total value of €12,500 or less (using values from 1st January 1980) are exempt from Immovable Property Tax.
Taxpayers who settled their 2016 immovable property tax liability by 31 October, 2016 are entitled to a 75% discount. If the liability was settled between 1 November and 31 December, 2016, the taxpayer is entitled to a discount of 72.5%. If the liability is settled after 31 December, 2016, it will be discounted by 69.75%. If the total liability after any discount is less than €10, it will be waived.
Immovable property tax has been abolished since the beginning of 2017.
CAPITAL GAINS TAX
Capital Gains Tax is levied at a rate of 20% on gains arising from the disposal of immovable property or the disposal of shares of companies, the assets of which consist mainly of immovable property. Subject to certain conditions, individuals may claim the following deductions:
- Up to €85,430 if the disposal relates to a private residence.
- Up to €25,629 if the disposal is made by a farmer and relates to agricultural land.
- Up to €17,086 on any other disposal.
These deductions are granted once in the lifetime of the individual, until fully exhausted and, if an individual claims a combination of them, the maximum deduction granted cannot exceed €85,430.
INHERITANCE TAX
Inheritance Tax was abolished as of 01/01/2000.
COUNCIL TAXES
Council Taxes are payable to the Council in which your property is listed at the end of each year.
Said taxes are due to be paid by you only once you secure delivery of the property, not prior to that.
Council Taxes are approximately €400 per year, depending on which Council your property is listed at.
STAMP DUTY FEES
The Purchaser is liable for the payment of Stamp Duty on the purchase price of the property at the following rates:
| First €5,000 | 0.00% |
| €5,001 to €170,000 | 0.15% |
| over €170,001 | 0.20% |
The documents should be stamped within 30 days of their signing in order to avoid the payment of a fine, which could be a substantial amount of money.
TRANSFERING FEES
Real estate transfer fees are imposed by the Land Registry Office in order to transfer freehold ownership to the name of the purchaser. The transfer fees are due for payment when the transfer of the title deed in the name of the purchaser takes place. The purchaser is solely responsible for the payment of the transfer fees.
The rates are on a graduated scale.
The transfer fees are calculated as follows:
MARKET VALUE | RATE | FEE | ACCUMULATED FEE |
| € | % | € | € |
| First 85.000 | 3 | 2.550 | 2.550 |
| From 85.000 to 170.000 | 5 | 4.250 | 6.800 |
| Over 170.000 | 8 | - | - |
If the property is in joint names, such as a couple or two individuals, then the purchase value is divided into two parts which results in reduced transfer fees.
An amendment regarding the reduction of immovable property transfer fees has been approved by the Cyprus House of Representatives. This new measure, which is currently in effect, will remain in force until the end of 2016. It applies only to the first sale of a property and it abolishes or reduces transfer fees provided that the contract of sale has been deposited with the Land Registry within the period of a month set by law. More specifically:
- No transfer fees will be payable for properties which are subject to VAT.
- Transfer fees are reduced by 50% for those who do not pay VAT on their purchase.
UTILITY BILLS
The basic utilities, electricity, water, and telephone charges are payable individually in accordance with consumption and based on metre readings — with each bill usually costing around 100 euros.
LEGAL FEES
The legal fees associated with the purchase will be approximately 2% to 2.5% of the purchase price all inclusive.
This includes the approximate legal fees of 1.25% plus VAT of 15%, plus the real expenses of 0.75% which includes stamp duty on contracts and power of attorneys, postage and administration, and 0.5% for a mortgage arrangement fee.
