South Cyprus taxes its residents using a tiered taxation system. The country also offers special tax conditions to expats. In this guide, you will find out how much tax you may have to pay when you become a tax resident in Cyprus.
In this guide:
- Cyprus tax residency: how to qualify.
- Non-Dom program: what it is and how you can benefit from it.
- Cyprus' flat tax or tiered system: which one to opt for to pay less tax.
Is Cyprus a tax haven?
Cyprus is known as a low-tax destination with significant tax advantages for expats and businesses, but officially, it is not considered a tax haven.
South Cyprus offers great tax incentives for expat retirees, making them very attractive retirement destinations.
South Cyprus taxation
Cyprus has Double Taxation Treaties (DTT) with over 60 countries worldwide, including the UK, USA, Canada, and all of the EU.
If you are an expat resident living in Cyprus, and your home country has a DTT with Cyprus, you will never be double-taxed on the same income. Instead, you will be taxed on certain incomes in either your country of domicile or your country of residence, depending on the DTT between the two countries.
The DTT between the Republic of Cyprus and your home country makes it extremely attractive for foreign citizens to retire, set up a business, and invest in South Cyprus.
How do I become a tax resident in South Cyprus?
All you need to do to become a tax resident in South Cyprus is to spend 60 days there while not being a tax resident in any other country and not spending more than 183 days in any other country.
South Cyprus Non-Domicile Program
The term “resident but not domiciled”, also called Non-Dom Cyprus, was passed as law in July 2015. Any individual relocating to Cyprus and taking up Cyprus tax residency can generally qualify as a Cyprus non-domiciled resident and stay as such for 17 years of residence in Cyprus.
To be considered non-domiciled in Cyprus, an individual must have a domicile of choice outside of Cyprus and mustn’t have been a Cyprus tax resident in the last 20 years prior to the relevant tax year.
Cyprus non-domiciled tax residents are completely exempt from Special Contribution for Defence (SDC) on dividends, interest, and rental income no matter where they originate from and were paid to.
The total tax exemption makes the holding of investments in dividends and/or interest-earning financial assets, including shares and bonds, in Cyprus and anywhere in the world extremely attractive for non-Cyprus domiciled individuals.
Cyprus non-doms are also exempt from capital gains tax and are eligible for a 50% reduction in land transfer fees on properties acquired before December 31, 2016. They can also enjoy exemption from wealth, gift, or inheritance taxes in Cyprus.
If you have been a tax resident of Cyprus for at least 17 years out of the last 20 years prior to the tax year, you will be considered to be “domiciled in Cyprus”, and your tax position will change.
What is the corporate tax rate in South Cyprus?
The regular corporate tax is 12.5% on profits. There is a 2.5% tax on royalties received in connection with intellectual property rights held in Cyprus.
South Cyprus income tax for expats
Personal income in Cyprus is taxed on a tiered basis, with quite a substantial tax-free allowance of €19,500.
The maximum income tax rate on personal income in Cyprus is presently set at 35% for income in excess of €60,000.
Individuals taking up employment in the Republic who were non-resident prior to employment are entitled to an allowance of 20% remuneration up to a maximum of EUR 8,543 for a period of three years.
Individuals with annual remuneration in excess of EUR 100,000 are entitled to an increased allowance of up to 50% for a period of five years.
Taxes on pensions and passive foreign incomes in South Cyprus
Any foreigner with a passive income outside of Cyprus when moving to Cyprus has two options:
- To pay a fixed tax rate of 5% a year on their income for amounts exceeding €3,420
- Or to opt for Cyprus’ tiered income tax system
In addition, a retired person can switch between Option 1 and Option 2 on a yearly basis.
The advantage of using this switch lies in the amount of money you can have tax-free in Cyprus before your income becomes taxable if you opt for tiered taxation.
At present, Cyprus residents can earn up to €19,500 tax-free.
The next €8,500 (between €19500 and €28,000) is taxed at 20%. Income between €28,000 and €36,300 is taxed at 25%, an income of €36,300 – 60,000 is taxed at 30%, and everything above €60,000 will give you a tax bill of 35%.
So, if you intend to draw a relatively small annual income, it makes sense to opt for a tiered system.
The following table illustrates how it works:
| Income (€) | Tiered tax rates | Flat tax rate of 5% above €3,420 (€) |
| 19,500 | zero tax | €804 |
| 25,000 | €19,500 – tax-free €5,500 @ 20% – €1,100 Total: €1,100 | €1,079 |
| 26,000 | €19,500 – tax-free €6,500 @ 20% – €1,300 Total: €1,300 | €1,179 |
| 30,000 | €19,500 – tax-free €8,500 @ 20% – €1,700 €2,000 @ 25% – €500 Total: €2,200 | €1,329 |
| 40,000 | €19,500 – tax-free €8,500 @ 20% – €1,700 €8,300 @ 25% – €2,075 €3,700 @ 30% – €1,110 Total: €4,885 | €1,829 |
| 65,000 | €19,500 – tax-free €8,500 @ 20% – €1,700 €8,300 @ 25% – €2,075 €23,700 @ 30% – €7,110 €5,000 @ 35% – €1,750 Total: €12,635 | €3,079 |
Comparison between Cyprus tiered tax rates and flat 5% rates
As you can see, the year your retirement income exceeds €25,000, you will start saving money on tax by switching over to the flat tax rate of 5%. The bigger the income you draw, the more money you save on your tax bill.
After you stay in the Republic of Cyprus for more than 183 days in one year, you will be regarded as a non-domiciled tax resident, and from now on, bank interest and share dividends will become tax-free, too.
You might find useful:
- Living In Cyprus – The Expats’ Guide: a detailed manual to moving to South Cyprus, including residency, cost of living, healthcare, etc.
- Best Places To Live In The Republic Of Cyprus - most popular expat locations in South Cyprus
- The Expat Guide to UK Pensions Abroad – detailed information about your state, workplace, and private pensions when you retire abroad; your options and tax implications
- Didn’t find what you were looking for or need further advice? Comment with your question below, and we will do our best to help.
Helpful external links:
- Information on foreign pension taxation in The Republic of Cyprus - Cyprus Tax Department.
