CYPRUS Law and Practice Contributed by: Alexis Erotocritou, Dafni Loizou and Georgia Demou, A.G. Erotocritou LLC
1. Tax 1.1 Tax Regimes
Cyprus and has also been taxed abroad, they are entitled to a tax credit for the foreign taxes paid on that income in the foreign countries in which the income was generated, irrespective of whether a double tax treaty exists. The amount of tax credit cannot exceed the Cyprus tax arising on the spe - cific income. 1.2 Exemptions The following tax exemptions exist in Cyprus. Estate Duty, Wealth Tax, Gift Tax and Inheritance Tax There is no estate duty, wealth tax, gift tax or inherit - ance tax in Cyprus. Exemptions Under the Non-Domiciled Status Applicable for Individuals A Cyprus non-domiciled tax resident individual is exempt from tax on dividend and interest income. However, for Cyprus tax resident individuals (irrespec - tive of their domicile status), such income is subject to contributions to the GHS at the rate of 2.65%. No Tax on Gains Arising From the Disposal of Investments Any gains arising from the disposal of shares (except where certain conditions are met as per 1.1 Tax Regimes ), bonds and other similar financial instru - ments (including options and rights thereon) are exempt from tax. However, such income (of trading nature only) is sub - ject to contributions to the GHS at the rate of 2.65%. No Tax on Retirement Gratuity and Special Tax Regime on Foreign Pension Income Any lump sum received as a retirement gratuity is exempt from tax. Further, a Cypriot tax resident indi - vidual receiving pension income from services ren - dered abroad may choose to be taxed at a flat rate of 5% on amounts exceeding EUR5,000 per annum. Exemption From CGT on Sale of Real Estate Gains arising from the disposal of non-Cypriot real estate are exempt from CGT. Lifetime exemptions
The main taxes applicable in Cyprus for individual cli - ents, estates, trusts and foundations are as follows. • Income tax – levied at rates ranging between 0% and 35%, depending on the taxpayer’s level of income. • Capital Gains Tax (CGT) – charged at 20% and only applies to profit from the sale of immovable prop - erty in Cyprus including, upon the satisfaction of certain conditions, the sale of shares of a company that directly or indirectly owns immovable property situated in Cyprus. The sale of shares in com - panies that are listed on a regulated market of a recognised stock exchange is exempt from CGT. • Corporation Tax – levied at the rate of 15%. • Special Contribution for Defence (SDC) – imposed on dividends at the rate of 5% and interest at the rate of 3% (on interest earned on listed corporate bonds, Cypriot or other EU member states bonds, etc) or 17% (on other interest). The SCD applies to individuals who are both Cyprus tax residents and Cyprus-domiciled. • Inheritance, estate or gift tax – Cyprus does not currently impose any of these taxes. • Cyprus social insurance and General Healthcare System (GHS) contributions apply to individuals, employees, directors and self-employed per - sons. Employees and employers contribute to social insurance, with the standard employee and employer social insurance rate being 8.8%, while self-employed persons generally contribute 16.6% on insurable earnings. Separately, GHS contribu - tions apply to employment, self-employment, pensions and passive income, such as dividends, interest and rents, with the GHS annual contribu - tion base capped at EUR180,000 per individual. • Cyprus is a party to more than 65 tax treaties that provide for nil or reduced withholding tax rates on dividends, interest, royalties and pensions received from abroad. Withholding taxes are imposed on payments of dividends to low tax and/or non- cooperative with EU jurisdictions (subject to condi - tions). • When a Cyprus tax resident payer receives income from outside of Cyprus, which is subject to tax in
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