Both South and North Cyprus tax their residents using tiered taxation system. Both sides also offer special conditions to expat retirees. In this guide you will find out how much tax you may have to pay when you become a tax resident in Cyprus.
- 1 Is Cyprus a tax haven?
- 2 South Cyprus taxation
- 3 How do I become a tax resident in South Cyprus?
- 4 South Cyprus Non-Domicile Programme
- 5 What is the corporate tax rate in South Cyprus?
- 6 South Cyprus income tax for expats
- 7 Taxes on pensions in South Cyprus
- 8 North Cyprus taxes for expats
- 9 How is my pension taxed in North Cyprus?
- 10 Income tax in North Cyprus
- 11 Annual property 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.
Both South and North Cyprus offer 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 across the world, including the UK.
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. Rather 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 the UK makes it extremely attractive for British 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 Programme
The term “resident but not domiciled”, also called Non-Dom Cyprus, was passed as a 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 where they have been 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 in South Cyprus
Any British pensioner retiring to Cyprus, be they in receipt of private or public sector pensions, has two options:
- To pay a fixed tax rate of 5% a year on their pension 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 are intending 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 (€)
|25,000||€19,500 – tax-free |
€5,500 @ 20% – €1,100
|26,000||€19,500 – tax-free |
€6,500 @ 20% – €1,300
|30,000||€19,500 – tax-free |
€8,500 @ 20% – €1,700
€2,000 @ 25% – €500
|40,000||€19,500 – tax-free |
€8,500 @ 20% – €1,700
€8,300 @ 25% – €2,075
€3,700 @ 30% – €1,110
|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
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 become tax-free too.
North Cyprus taxes for expats
There is not any tax treaty between the UK and the TRNC and this makes the whole situation a bit more complicated.
If you stay in the TRNC for more than 6 months in a year, you are considered a tax resident.
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How is my pension taxed in North Cyprus?
The government of North Cyprus does not tax foreign pensions.
Prior to leaving the UK, among other things you should inform your pension provider and then register in North Cyprus for tax purposes. Thus you will be able to receive your UK pension gross and yet not be taxed on it in the TRNC either.
Another advantage is that the TRNC has not signed up to the European Savings Tax Directive. This means you can legally keep your money in offshore accounts and bring in only what you need.
Income tax in North Cyprus
As a tax resident of North Cyprus you must pay income tax on all the income that derives from your North Cyprus activities and on all the money you bring into North Cyprus from abroad.
Any earnings made in the TRNC, such as income from property letting or from bank interest, are taxable.
It’s a tiered system with tax rates from 10 to 37 percent depending on your income.
Annual property tax
You will pay 1.25 Turkish Lira per 1 sq.m. of covered area of your property in an annual property tax.
You don’t have to pay Capital Gains Tax if you sell your property for the first time provided the plot of land is less than one donum.
If you are not a first time seller you will pay Capital Gains Tax at the rate of 3.5% for property sales.
Tax issues in the TRNC are complex. To be on the safe side it’s best to consult a local tax specialist.
It is also important to have two wills in place: one in the UK, and the other in the TRNC to cover your TRNC property and bank account.
According to North Cyprus laws, if one of the partners in a marriage or relationship dies intestate (i.e. without leaving a will) the remaining spouse will not automatically inherit the estate if there are surviving children. I.e., the laws of succession differ to those in the UK.
To cover your assets and property in North Cyprus, you need to prepare and sign your will with a lawyer in the TRNC.
You might find useful:
- Living In Cyprus – The Expats’ Guide: take a look at both the North and South of Cyprus to decide whether the island is the right place for you;
- Best Places To Live In The Republic Of Cyprus – most popular expat locations in South Cyprus;
- The Best Places To Live In North Cyprus (TRNC) – most favourite expat locations in North Cyprus ;
- The Expat Guide to UK Pensions Abroad – detailed information about your state, workplace and private pensions when you retire abroad; your options, tax implications and opportunities if you transfer your pension pot abroad or leave it in the UK.