Cyprus, as an important international financial center, attracts both individuals and legal entities with its tax system. The foundation of this system is the income tax, which is regulated by strict yet flexible laws that comply with European standards. In this article, we will examine the main aspects of income tax in Cyprus for individuals and legal entities, discuss how the tax is calculated, and what rates are applied.
Income Tax for Individuals
Income tax in Cyprus for individuals applies to those considered residents of the country. A tax resident is a person who spends more than 183 days a year in Cyprus. Since 2017, there has also been a “60-day” rule, which allows a person to become a tax resident of Cyprus if they reside in Cyprus for at least 60 days a year, under certain conditions. A person who is a tax resident of the Republic of Cyprus pays tax on income earned from sources both within and outside the Republic. If a person is not a tax resident of Cyprus, they only pay taxes on domestic income. The tax obligations of individuals depend on their annual income level, and a progressive scale is used for tax calculation.
The following income tax rates apply to individuals in Cyprus:
- Income up to €19,500 per year — 0%
Income from €19,501 to €28,000 — 20%
Income from €28,001 to €36,300 — 25%
Income from €36,301 to €60,000 — 30%
Income over €60,000 — 35%
For example, if the annual income is €70,000, then €19,500 of this amount is tax-exempt, the next €8,500 is taxed at 20%, the next €8,300 at 25%, the following €23,700 at 30%, and the remaining €10,000 at 35%.
Thus, income tax starts with income exceeding €19,500 per year.
This approach allows for a progressive increase in the tax burden depending on the taxpayer’s income level.
Income Tax for Legal Entities
Legal entities in Cyprus are also subject to income tax, which in this case is referred to as corporate tax or profit tax. This tax applies to the income of companies registered in the country, as well as to foreign companies operating in Cyprus.
For legal entities in Cyprus, there is a flat corporate tax rate of 12.5% on taxable profits. This rate is one of the lowest among European Union countries, making Cyprus an attractive place for business registration and commercial activity.
Corporate tax in Cyprus is calculated based on the company’s taxable profit, which is determined as the total income of the company minus all allowable deductions, such as production costs, administrative expenses, depreciation, and other operational costs.
For example, if a company in Cyprus earned €1,000,000 in income and had expenses of €400,000, the taxable profit would be €600,000. At a tax rate of 12.5%, the company would pay €75,000 in taxes.
Corporate tax in Cyprus applies to all types of income earned by a legal entity, including income from commercial activities, asset sales, property rentals, and other sources. Additionally, income earned outside Cyprus is also included in the taxable base if the company is a resident of Cyprus.
Furthermore, companies can benefit from tax reliefs, such as the IP Box scheme with a 2.5% rate, which allows for a reduction in taxable profit from intellectual property.
Income tax in Cyprus is an important element of the national tax system, regulating both individual income and corporate profits. The progressive scale for individuals and the flat corporate tax rate for companies create a transparent and fair taxation system that fosters investment and supports economic growth on the island.
Understanding the key aspects of income tax in Cyprus allows both individuals and companies to effectively plan their tax obligations and take advantage of the country’s tax system to achieve their financial goals.
