Paying 2017-2018 income tax in Cyprus? Read this.
Taxes may not be a great deal of fun, but understanding your responsibilities is essential. Getting it wrong can prove a costly hassle. You could end up having to pay a fine, or even face criminal charges. The situation is even more complicated if you’re an expatriate, paying your tax in a different country, under an unfamiliar system. If you’re a cross-border commuter, a non-resident foreigner living in a different country for a short while, or a freelance or remote worker, it can be hard to know where your tax liabilities lie.
Cyprus is a member of the EU - however, even within Europe, there’s no single law which dictates how a citizen who lives or works abroad should be taxed. Tax is a complex legal area, and it’s important that you understand your own personal situation.
This overview of the Cypriot income tax system is a great starting point. However, if you think you might need to pay tax on some or all of your income in Cyprus, getting professional advice to work out exactly what you owe is the best way to go about it.
(Source, 5 December 2017)
What income is taxable in Cyprus?
If you’re a tax resident in Cyprus you’ll have to pay tax on your worldwide income to the authorities in Cyprus. If you’re not a tax resident in Cyprus, you still have to pay some tax there, but usually, this will only be due on money you’ve earned in Cyprus. Not sure about whether you’re a Cypriot tax resident or not? We’ll get to that shortly.
Some forms of income aren’t taxable in Cyprus. Some interest, for example, isn’t taxed, and you’ll usually find that lump sums for things like retirement or compensation are tax-free. However, the law is quite complex so it’s worth seeking advice if you’ve received some unexpected gains.
(Source 1, Source 2, 5 December 2017)
Who has to pay income tax in Cyprus?
How you’re taxed depends on your personal circumstances. Importantly, you’ll be classified as either:
- A resident taxpayer
- A non-resident taxpayer
If you spend the majority of your time living in Cyprus, you’ll be classified as a resident taxpayer. That means that you have to pay tax on your worldwide income to the Cypriot tax authorities. However, you might qualify for non-resident status if you spend less than half the tax year in Cyprus. That means that in Cyprus you’ll only have to pay tax on money you’ve earned in Cyprus.
(Source, 5 December 2017)
Resident income tax
In Cyprus, the tax year is the same as the calendar year - 1st of January through to 31st of December. You’re a resident taxpayer if you’ve lived in Cyprus for at least 183 days of the tax year in question. In this case, you have to pay tax on any income you make anywhere in the world, to Cypriot authorities.
(Source, 5 December 2017)
Non-resident income tax
If you live in Cyprus for less than 6 months of the tax year, you might get non-resident tax status for that year. This means you pay tax in Cyprus only on the relevant income you’ve earned in Cyprus. However, you might still be liable for taxes wherever you were resident for the rest of the year.
(Source, 5 December 2017)
In what instances do Cypriot residents working abroad need to pay income tax?
If you’re a resident of Cyprus, but work abroad for some of the year, it’s a good idea to check what your tax liabilities are.
How you'll be taxed depends on how long you’re away from Cyprus. If you work abroad for less than half of the year, then you probably need to declare all your worldwide earnings for that tax/calendar year in Cyprus.
However, the situation gets more complicated if you’re abroad for more than half of the year. Spend 183 days or more away from Cyprus and you might be considered a non-resident taxpayer instead. In this case, you’ll need to pay tax in Cyprus only on income you’ve earned there.
What are the income tax rates in Cyprus in 2017-2018?
Cyprus has a progressive tax system, with a fixed tax-free amount. That means that you’re not taxed on the first €19,500 you earn, but a progressively higher tax rate is applied based on how much you earn above that amount.
If you’re employed in Cyprus, your employer might deduct some money from your wages every month under the pay as you earn (P.A.Y.E) tax system. This might well cover everything you owe in taxes.
However, if you earn over the €19,500 tax-free threshold, you still have to complete a tax declaration to ensure everything is paid and any other earnings are covered. This tax declaration is also where you can claim any exemptions or allowances.
If you’re paying taxes for the 2017-2018 tax year in Cyprus these are the rates that will apply:
| Income range | Cyprus income tax rate (%) 2017 |
|---|---|
| up to €19,500 | 0% |
| €19,501 – €28,000 | 20% |
| €28,001 – €36,300 | 25% |
| €36,301 - €60,000 | 30% |
| €60,001 and over | 35% |
(Source, 5 December 2017)
What are the tax exemptions in Cyprus?
Tax is applied on taxable income only. You start with your entire income, and, to work out your taxable income, you remove any relevant deductions, such as fees you’ve paid to trade unions or charitable donations. The most common of these deductions are listed below.
You might also be eligible for other tax breaks depending on your personal situation. To claim any of these allowances you have to include them on your tax declaration.
Social insurance, life insurance, and fund contributions
Your taxable income doesn’t include social insurance payments, anything you pay to a medical fund, pension and provident funds, and life insurance premiums. However, all of these deductions are subject to maximum limits, so you’ll need to make sure you’re clear on what exactly you can legally deduct from your taxable income.
Trade union, or professional body expenses
You can deduct payments made to a trade union or other professional body, from your taxable income.
Donations to charity
You can remove donations to registered charities from your taxable income, as long as you have receipts and proof of payment.
Other deductions
There are a number of other, specialist deductions which won’t apply to everyone. For example, you can reduce your taxable income in some cases, if you have a rental income, if you’re investing in innovative small and medium-sized enterprises (SME), or if you're maintaining a protected building. These might be edge cases, but it’s proof that it’s worth really understanding the tax system before you complete your declaration.
(Source, 5 December 2017)
What sort of double taxation agreements are there with Cyprus?
It’s possible for someone to be liable to pay tax in 2 countries. If you’re a cross-border commuter or if you travel to different countries very often for work, for example, the country in which you earn most of your money may want you to pay them tax - even if you don’t always live there.
To make sure that people don’t actually have to pay double the amount of tax due, many countries have what's known as double taxation agreements. These help to ensure that you only pay tax once on your earnings.
The Cypriot Ministry of Finance publishes a full list of the countries with which it has double taxation treaties. However, the ministry notes that some treaties are being renegotiated, and some are listed as having been concluded with countries which have subsequently ceased to exist. For example, the ministry says that the treaty it had in place with the former Yugoslavia is still in force. Given the changing geopolitical scene, it’s worth checking the situation early if you’re in one of these countries, or if the taxation treaty is marked as under review.
Cyprus has double taxation agreements with the following countries:
| Cyprus double taxation agreements | |
|---|---|
| Armenia | Latvia |
| Austria | Lithuania |
| Azerbaijan | Luxembourg |
| Barbados | Lebanon |
| Belarus | Malta |
| Belgium | Montenegro |
| Bosnia Herzegovina | Mauritius |
| Bulgaria | Moldova |
| Canada | Norway |
| China | Poland |
| Czech Republic | Portugal |
| Denmark | Romania |
| Egypt | Russia |
| Estonia | San Marino |
| Ethiopia | Serbia |
| Finland | Singapore |
| France | Slovenia |
| Germany | Slovakia |
| Georgia | South Africa |
| Greece | Spain |
| Hungary | Syria |
| Iran | Sweden |
| Ireland | Switzerland |
| Iceland | The States of Guernsey |
| India | Thailand |
| Italy | Ukraine |
| Jersey | UAE |
| Kingdom of Bahrain | UK |
| Kuwait | USA |
| Kyrgyzstan | Uzbekistan |
(Source, 5 December 2017)
How do I pay income tax in Cyprus?
The majority of taxpayers in Cyprus submit their tax declaration online. This is usually far faster and easier than completing a paper declaration, although this is still possible if you’d rather send your forms in by snail mail. This must be done by the 30th of April (if submitted on paper), or the 31st of July (if submitted electronically) in the following tax year.
Paying income taxes online
You can pay your tax return online, but in order to access the system, you have to provide copies of your ID card in person. That means you have to visit the tax authorities’ office, hand over an application, as well as show your photo ID in order to get registered on the tax system.
Once registered, using the online system means that you get an extension on the deadline, and can submit your tax declaration later than if you were using the paper forms.
(Source, 5 December 2017)
If you’re paying taxes in Cyprus, using a bank account held in a different country or currency, you’ll need to take into consideration any charges that will be added to the transfer you make to pay your taxes. If you need to convert your money from a different currency to euros to cover your tax bill, it could cost you more than you think. That’s because banks and money exchange services often use unfair exchange rates rather than the real, mid-market rate, which you’d find on Google. This can mean they mark up the rate by 4-5%. They keep the difference as their profit, and you end up out of pocket.
If you’re an expat paying taxes in Cyprus, a great alternative is to use Wise. Because Wise works differently to banks, you can get your money transferred quickly and safely, using the real exchange rate, and a fair fee stated upfront.
There’s no smoke and mirrors. It works because Wise doesn’t use the pricey SWIFT system for making bank transfers. This brings down the costs, and the savings are passed on to the customer. Depending on the circumstances, you might be able to pay your taxes directly using a Wise transfer, or if you don’t already have a bank account in Cyprus, you could transfer the payment to a friend or family member who does, to bring down the costs.
If you often have to move your money between different currencies, a new Wise borderless multi-currency account could make life even simpler. You can hold your money in any one of dozens of different currencies - including euros - and then switch between them whenever you need to. You get the real exchange rate, and there’s only a small transparent fee for the exchange.
Taxes are a difficult topic, and they’re even more complicated if you’re an expatriate working abroad, a cross-border commuter, or if you juggle life between different countries. You should do some research in advance to make sure you’re clear on your options and duties when it comes to tax. Getting it wrong can be an expensive mistake. Whatever taxes you need to pay, you don’t want to lose out because of unfair fees levied on converting your money. See if you can get a better deal with Wise if you find yourself needing to pay your taxes abroad.
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