Doing business in Cyprus: Taxation and Payroll

Tax Figures

Corporate Income Tax

The current corporate tax rate in Cyprus is 12.5%.

Companies are required to submit their tax returns by 31 March of the year following the tax year via electronic submission, which is mandatory for companies. The tax year is usually the calendar year.

Companies must make two provisional payments of tax on 31 July and 31 December. If the income declared for the payment of the provisional tax is lower than 75% of the income as finally determined, an additional amount equal to 10% of the difference between the final and provisional tax is payable.

Income Tax Rate

0 – €19,500: 0%
€19,500-28000: 20%
€28001-36300: 25%
€36301-60000: 30%
Over €60000: 35%

Payroll Tax

Sales Tax

VAT is imposed on the supply of goods and provision services in Cyprus, as well as on the acquisition of goods from the European Union (EU) and the importation of goods into Cyprus. Taxable persons charge VAT on their taxable supplies (output tax) and are charged with VAT on goods or services which they receive (input tax).

The registration threshold for VAT purposes is € 15,600 (€ 10,251 for intra-community acquisitions of goods.

The current standard rate of VAT imposed on taxable goods and services is 19%, with reduced rates of 0%, 5% and 9%.

Withholding Tax

Cyprus imposes withholding tax (WHT) on certain classes of income earned by non-residents:

Dividends: No WHT applies. However, a 17% Defence Fund tax is withheld from dividends paid to resident individuals. This tax is a final tax.
Royalties: 5% on film royalties, and 10% on all other royalties
Interest: No withholding tax is imposed on interest paid to a nonresident. Interest paid to a resident is subject to Defense Fund Tax deducted at source at 30%.
Technical service fee: 10%

A reduced rate may be available under an applicable Double Tax Treaty or EU Directive.

Other Tax

Immoveable property tax: Immovable property tax (IPT) is imposed on immovable property located in Cyprus and held by individuals and legal entities at 1 January each year. The tax base is the value of the property as at 1 January 1980, as determined by legislation. The rates range from 0.6% to 1.9%.
Stamp duty: Imposed on certain instruments relating to a property situated in Cyprus or to an act to be performed in Cyprus. Stamp duty on commercial contracts is charged at rates that vary according to the contract amount. A ceiling of € 20,000 per document applies.
Transfer taxes: The transfer of immovable property is subject to a transfer fee ranging from 3% to 8%, calculated on the market value of the property as estimated by the land registry department.
Special contributions for defence taxes: Defence Fund taxes are imposed on income derived by companies and individuals resident in Cyprus from sources in Cyprus. The Defence Fund tax is levied on dividends (17%) [in some cases], interest (30%) and rents (3%). A basic levy of 0.15% (paid in four instalments of 0.0375%) of specified liabilities is payable by all credit institutions incorporated in Cyprus and by their foreign branches. An annual company levy of € 350 is imposed on companies, capped at a total of € 20,000 for companies in a group. The levy is payable by 30 June of each year, with penalties applying for late payment.

Time to prepare and Pay Taxes

127 hours

Employers Social Security and statutory contributions

Employer’s total contributions include:

Social Insurances’ contributions amounting to 7.8% of the employee’s monthly salary.
Contributions to the Social Cohesion Fund equal to 2% of the employee’s monthly salary.
Contributions to the Redundancy Fund equal to 1.2% of the employee’s monthly salary.
Contributions to the Industrial Training Fund equal to 0.5% of the employee’s monthly salary.
Contributions to the Leave Fund (in lieu of holiday pay) equal to 8% of monthly salary [however, exemption may be obtained from having to contribute to this fund]

All monthly contributions are capped at € 4,533.

In addition to the above, both employers and employees are also subject to a special contribution for any individual with monthly gross employment income above €1,500. The rates range from 0-3%, and are shared equally between the employer and the employee.

Employees Social Security and statutory contributions

Employees only make contributions towards Cypriot Social Insurance. The employee’s total contributions amount to 7.8% of their monthly salary. All monthly contributions are capped at € 4,533.

Payroll

Foreign companies operating in Cyprus may find it challenging to deal with the complexities of the country’s tax system. The primary concerns for a foreign company that needs to comply with tax laws in Cyprus are: Individual income tax (IIT) for employees in Cyprus, social security costs, VAT, withholding tax, business tax and permanent establishment concerns.

Remote Payroll

A remote payroll in Cyprus is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Cyprus. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Cyprus is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Cyprus under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Cyprus may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Cypriot payroll and can fulfil all tax, withholding tax and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Cypriot employment laws.

Currency

Euro €