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Cyprus: A Tax Haven for Expats? Understanding the Reporting Rules

08.08.2024

Cyprus has become a favorite expat destination, not only for its sun and beaches, but also for its favorable tax policy. However, managing the tax reporting regulations as an expat in Cyprus necessitates a thorough awareness of your residency status and the repercussions.

Determining Tax Residency in Cyprus

Before getting into the mechanics of tax reporting, it is critical to ascertain whether you are deemed a tax resident of Cyprus. The requirements for tax residency in Cyprus are as follows:

  • The 183-Day Rule: A person is deemed a tax resident if they spend more than 183 days in Cyprus within a tax year (the tax year in Cyprus runs from January 1 to December 31).
  • 60-Day Rule: An individual can be designated a tax resident if they spend at least 60 days in Cyprus within a tax year and meet all of the following conditions:
  1. They do not stay in any other nation for more than 183 days during the same tax year.
  2. They retain a permanent residence in Cyprus (owned or rented).
  3. They conduct business, operate in Cyprus, or have an office in a Cyprus-resident corporation.
  4. They are not tax residents of any other country.

Tax Reporting Obligations

As a tax resident in Cyprus, you are taxed on your worldwide income. Here are the main tax reporting duties for expats in Cyprus:

1. Personal Income Tax

Income Tax Rates: Cyprus uses a progressive tax system. Income tax rates for the fiscal year 2024 are as follows:

  • Income up to €19,500: 0%.
  • Income between €19,501 and €28,000: 20%.
  • Income between €28,001 and €36,300: 25%.
  • Income between €36,301 and €60,000: 30%.
  • Income above €60,000: 35%.

Expats must file an annual income tax return (Form TD1) if their total income exceeds €19,500. The deadline to submit the tax return online is July 31 of the following year.

There are several deductions and credits available, including contributions to social insurance, provident funds, pension plans, and donations to qualified organizations.

2. Special Defense Contribution (SDC)

Application: The SDC is applicable to Cypriot tax residents who are also domiciled in Cyprus. The SDC is imposed on income that includes dividends, interest, and rental income.

The SDC rates are listed below:

  • Dividends: 17 percent
  • Interest: 30%.
  • Rental income: 3% (75% of gross rent).

Expats subject to the SDC must file quarterly returns and pay the SDC on applicable income.

3. Capital Gains Tax

  • Scope: Capital gains tax is levied on gains from the sale of immovable property located in Cyprus or shares in firms that own such property.
  • Rate: The capital gains tax rate is 20%.
  • Exemptions: There are several exemptions and deductions available, including a lifetime exemption on earnings from the sale of a primary house up to €85,430.

4. Social Insurance Contributions

  • Obligations: Both employees and self-employed people must contribute to the social insurance system. The contributions are calculated as a proportion of wages, with separate rates for workers and self-employed individuals.
  • Rates: As of 2024, the employee contribution rate is 8.3% of gross wages, while the employer contribution rate is 8.3%. The self-employment contribution rate is 15.6%.

5. Value-Added Tax (VAT)

  • Applicability: Expats engaged in business operations may be required to register for VAT if their yearly revenue exceeds the registration threshold (€15,600 in 2024).
  • Rates: The basic VAT rate is 19%, with reduced rates of 5% and 9% for certain products and services.
  • Filing Requirements: VAT returns are normally filed quarterly, with the deadline being the 10th day of the second month following the end of the VAT period.

Non-Domicile Status

Cyprus provides a favorable system for tax residents who are not domiciled in the country. Non-domiciled persons are immune from SDC on profits, interest, and rental income, making Cyprus an appealing destination for expats looking for tax advantages.

Double Taxation Treaties

Cyprus has double taxation arrangements with more than 60 countries. These treaties prevent double taxation by distributing taxing rights between Cyprus and the other contracting state. Expats should analyze these treaties to better understand their tax duties and benefits.

To avoid penalties and enhance tax efficiency, expatriates must understand and follow Cyprus’s tax reporting laws. You can efficiently manage your tax obligations in Cyprus by determining your tax residency status, complying with filing requirements, and claiming any deductions and exemptions. Consulting with a tax advisor who specializes in Cyprus taxation might provide additional guidance customized to your individual situation.

Track your tax residency days with Tax Resident app.

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