Cyprus

In Cyprus, employers face various tax obligations related to payroll, social security, and other contributions. These obligations are subject to specific rates, thresholds, and deadlines.

Payroll Taxes

• PAYE (Pay As You Earn): Employers withhold income tax from employees' salaries based on progressive rates ranging from 0% to 35%. The tax year aligns with the calendar year.

Social Security Contributions

• Employee Contributions: Employees contribute 8.8% of their gross salary to social security. The insurable earnings are capped at €66,612 annually for 2025.
• Employer Contributions: Employers also contribute 8.8% of each employee's gross salary. This rate is in effect from January 1, 2024, and will remain applicable for the next five years before being subject to potential increases.
• Social Cohesion Fund: Employers contribute an additional 2% of their employees' total earnings to the Social Cohesion Fund.

General Healthcare System (GHS)

• Employee Contributions: Employees contribute 2.65% of their gross salary to the GHS.
• Employer Contributions: Employers contribute 2.90% of their employees' gross salary to the GHS.

Employer's Annual Tax Declaration (Form TD7)

• As of the first half of 2025, Form TD7 along with all tax and contribution payments will be managed through the Tax For All (TFA) portal.
• Monthly TD7 submissions will become mandatory for 2025 and onwards, requiring the Tax Identification Number (TIN) for each employee.
• Until the full implementation of the TFA system, submissions for the 2023 tax year and prior should continue through the existing TAXISnet system. Monthly tax and contribution payments for 2023-2025 are also to be made via the current Tax Portal.

Other Relevant Information

• Tax Due Dates: Generally, the tax return filing deadline for employed individuals is July 31st of the following year. However, for self-employed individuals with audited accounts, it extends to March 31st of the second following year.
• Penalties: Penalties exist for late filing or payment, including administrative fines and interest charges on late payments.
• Foreign Tax Relief: A unilateral tax credit is available for taxes paid abroad, regardless of tax treaty status.

It is important to note that this information is current as of February 5, 2025, and may be subject to changes in regulations or further clarification by the Cyprus Tax Department. Consulting official Cyprus government resources and tax professionals is always recommended for the most up-to-date information and personalized guidance.

In Cyprus, employee tax deductions encompass income tax, social insurance, and General Health System contributions, along with specific allowable deductions and exemptions.

Income Tax

• Progressive Rates: Income tax rates range from 0% to 35% based on income brackets. As of 2025, the brackets are:

  • €0 - €19,500: 0%
  • €19,501 - €28,000: 20%
  • €28,001 - €36,300: 25%
  • €36,301 - €60,000: 30%
  • Above €60,000: 35%

• Tax Return (TD1 Form): Employees must submit the TD1 form to their employer at the start of each year, declaring estimated income and deductible allowances.

• Pay As You Earn (PAYE): Tax is deducted from salaries each month based on the information provided in the TD1 form.

Social Insurance Contributions

• Employee Contribution: 8.8% of gross salary, capped at €66,612 annual insurable earnings as of 2025.
• Employer Contribution: Also 8.8% of the employee's gross salary up to the same annual cap, plus contributions to other funds.
• Benefits: Contributions fund social security benefits like unemployment, disability, maternity, and retirement.

General Health System (GHS)

• Employee Contribution: 2.65% of gross salary.
• Employer Contribution: 2.90% of the employee's gross salary.
• Coverage: Provides access to both public and private healthcare services.

Allowable Deductions & Exemptions

• 50% Exemption for New Residents (High earners): Individuals who haven't been Cyprus tax residents for 15 consecutive years prior to commencing employment, earning over €55,000 annually (achievable within the first two years) in their first employment can claim this. This applies for 17 years.

• 20% Exemption for New Residents (Lower earners): For individuals new to Cyprus (not tax residents for 3 of the 5 years pre-employment), earning over €100,000 annually.

• Donations to Charities: 100% deductible.

• Life Insurance Premiums: Deductible up to 7% of the insured sum.

• Pension/Provident Fund Contributions: Deductible up to 10% of remuneration.

• Trade Union/Professional Body Fees: Deductible if not reimbursed by the employer.

• Medical Fund Contributions: Deductible up to 2% of total taxable income.

Important Considerations

• Tax Residency: Spending over 183 days in Cyprus generally qualifies an individual as a tax resident.

• Worldwide Income: Tax residents are taxed on worldwide income. Non-residents are taxed on Cyprus-sourced income.

• The information provided is accurate as of today, 05 February 2025 and is subject to change with future legal and regulatory updates. Consulting a tax advisor for specific circumstances is always recommended.

In Cyprus, Value Added Tax (VAT), locally known as FPA, is levied on most goods and services.

VAT Rates

• Standard Rate: 19% (most goods and services)
• Reduced Rates:
  • 9% (accommodation, restaurant/catering services, certain transport)
  • 5% (certain foodstuffs, pharmaceuticals, and other specified goods/services)
  • 3% (newspapers, books, magazines, medical equipment for disabled individuals, certain cultural services).
• Zero Rate: 0% (intra-community and international transport, goods on international flights, exports outside the EU)
• Temporary 0% Rate: Certain essential goods (baby milk, diapers, feminine hygiene products, some fresh produce) until December 31, 2025.

VAT Registration

• Mandatory Registration Threshold: €15,600 annual taxable turnover for Cyprus-resident businesses.
• Non-Resident Businesses: No threshold; registration required for any taxable supply.
• Distance Selling (goods to Cyprus consumers from other EU): €35,000 per annum.
• Distance Selling (excise goods): No threshold - registration always required.
• Intra-community acquisitions: €10,251.61 annually.
• Pan-EU digital services and goods using One-Stop Shop (OSS) return: €10,000.
• Fiscal Representative: Mandatory for non-EU businesses unless a reciprocity agreement or a direct registration with a bank guarantee is in place.

VAT Filing and Payment

• Filing Frequency: Quarterly (monthly filing may be allowed or imposed by tax authorities).
• Filing Method: Electronic submission via Taxisnet system (mandatory except for certain taxi drivers and farmers).
• Deadline: 10th day of the second month following the reporting quarter.
• Payment Deadline: Same as the filing deadline.
• Late Filing Penalty: €51 per return.
• Late Payment Penalty: 10% of the outstanding amount + 3.5% annual interest.

VAT Invoices

Must include:

• Supplier's name, address, and VAT number.
• Customer's name and address.
• Date of supply/cash receipt, and invoice issue date.
• Description of goods/services.
• Unit price/quantity, VAT rate, net amount (in Euros) for each item.
• Gross total amount payable (net of VAT).
• Cash discount (if applicable).
• Total VAT amount for each rate and overall total VAT (in Euros).
• VAT representative's details (if applicable).

Exempt Goods and Services

Certain goods and services are VAT-exempt, including:

• Postal services
• Financial and insurance services
• Real estate services
• Certain medical and dental services
• Educational services by licensed professionals
• Land and building supplies/leases
• Cultural services by public bodies/nonprofits

VAT Recovery for Foreign Businesses

Permitted, including through the 8th Directive mechanism for EU businesses, with a reciprocal agreement in place for non-EU businesses or a fiscal representative.

Intrastat Reporting

• Applies to businesses exceeding thresholds for dispatches (exports) and/or arrivals (imports) of goods from other EU states.
• Arrivals Threshold: €350,000 annually (from January 1, 2025).
• Detailed Arrivals Reporting Threshold: €2.7 million annually.
• Dispatches Threshold: €75,000 annually.

This information is current as of February 5, 2025, and may be subject to change. Always consult with a tax professional for specific guidance.

Cyprus offers a range of tax incentives for both businesses and individuals. These incentives aim to attract investment, stimulate economic growth, and create a favorable tax environment.

Corporate Tax Incentives

• Corporation Tax Rate: A competitive corporate tax rate of 12.5% applies to resident companies.

• Notional Interest Deduction (NID): Companies can deduct up to 80% of their taxable profit derived from new equity introduced after January 1, 2015. The deduction is calculated based on a formula that includes the 10-year government bond yield of the country where the funds are employed plus a 5% premium.

• Exemption on Profit from Securities: Profits from the sale of securities are generally exempt from tax.

• Exemption on Dividend Income: Dividends received from other companies are typically tax-exempt.

• Exemption on Interest Income: Interest income not arising from ordinary business activities is generally tax-exempt.

• IP Box Regime: 80% of the net profit derived from qualifying intellectual property assets is tax-exempt. This creates an effective tax rate as low as 2.5% on such income.

• Research and Development Deduction: A 120% enhanced tax deduction is available for research and development expenses directly related to income generation.

Personal Tax Incentives

• Exemptions for Non-Domiciled Individuals: Individuals who are tax residents of Cyprus but not domiciled in Cyprus enjoy exemptions from Special Defence Contribution (SDC) on dividend income (17%), interest income (30%), and rental income (3% on 75% of gross rental amount).

• Tax Relief for New Residents:

  • 50% deduction: Offered to individuals starting employment in Cyprus with an annual income exceeding €100,000, provided they were not tax residents in Cyprus the previous year. This deduction is available for a period of 17 years.
  • 20% deduction (up to €8,550): Applicable for individuals commencing employment in Cyprus after July 26, 2022, provided they haven't been Cyprus residents for the past three tax years and were employed abroad by a non-Cyprus resident employer. This exemption applies for seven years from the year following commencement of the employment, lasting until 2030. The 20% exemption is also applicable for individuals who commenced their first employment in Cyprus after January 1, 2022 but prior to July 26, 2022, and is available for five years.

Other Incentives

• Tax exemption on foreign exchange differences not derived from trading related derivates and currencies.
• Tax exemption on profits from Permanent Establishment abroad meeting specific conditions.
• No withholding tax on payments of dividends, interest and royalties, with the exception of royalties used in Cyprus, and payments to companies located in jurisdiction on the EU blacklist.
• Absence of inheritance tax.

It is important to note that tax laws and regulations can be complex and subject to change. Consulting with a tax professional is highly recommended for specific guidance on eligibility and application procedures for any tax incentives. Additionally, the information provided here is current as of February 5, 2025, and may be subject to revisions in the future.