Income tax as well as corporate tax, social security and value-added tax are among main revenue sources in Cyprus that are collected by the central government.
The tax system in Cyprus is progressive. The first €19,500 of income for Cyprus residents is tax-free and above that tax rates range from 20% to 35%. 35% rate applies for income exceeding €60,000. However, corporate tax rate in Cyprus is 12.5%. It is one of the lowest corporate tax within the EU and has the lowest non-offshore jurisdiction corporate tax rate in the world (alongside Ireland).
Income taxes of individuals
Income tax in Cyprus is levied under the Income Tax Laws and is assessed and collected under the Assessment and Collection of Taxes Laws. Income taxes are divided in income taxes of individuals and income taxes of companies. However, partnerships are not subject to tax as separate entities. Their income is allocated and assessed to tax on the partners, whether individuals or companies.
Individuals who are tax residents in the Republic of Cyprus are taxed from all sources of income – inside Cyprus and abroad. An individual is a tax resident in Cyprus if he or she spends more than 183 days in one calendar year in Cyprus. Individuals who are not tax resident in the Cyprus are only taxed on income within Cyprus.
Income taxes of companies
As well as individuals, companies that are tax residents of Cyprus are taxed on both their income sources accured or derived from Cyprus and abroad. If company is not Cyprus tax resident then it is taxed on income accrued or derived from business activity which is carried out through a permanent establishment in Cyprus and on certain income arising from sources in Cyprus. If the company is managed and controlled in Cyprus it is a resident of Cyprus.
Different types of income such as dividends, profits of a permanent establishment abroad, profit from sale of securities as well as interest not arising from the ordinary activities of the company are considered as incomes to which corporate taxation applies in Cyprus. Possible deductions are donations to charity, representation expenses, contributions to employers’ social insurance as well as all expenses related to the maintenance of a building.