What is Income Tax?

Income tax is money that you have to pay to the government based on how much money you earn. If you are a tax resident of Cyprus, you'll pay income tax on your income from sources inside and outside Cyprus. If you're not a tax resident of Cyprus, you'll only pay income tax on certain income you earn within Cyprus.

Understanding Cyprus Tax Brackets

Income tax in Cyprus is progressive, which means that the more you earn, the more tax you'll have to pay. However, different parts of your income are taxed at different rates.

What Counts as Total Income for Tax Purposes

Remember, your income isn't just your salary from your job. You must include all types of income, with only certain exceptions and deductions we'll discuss below.

Then, after making the applicable deductions and finding your total taxable income you can determine which tax bracket you fall into and how much income tax you need to pay.

However, just because you fall under a specific tax bracket does not mean that you'll pay that percentage on your entire income.

Exemptions and Deductions for Cyprus Income Tax

Before making your calculations, you must check if any of your income falls within exempted categories or if any deductions apply. These exemptions and deductions can lower your taxable income and reduce the amount of income tax you must pay.

Income Tax Exemptions in Cyprus

There are several types of income in Cyprus that are not counted when calculating income tax.

Income Tax Deductions in Cyprus

There are also a number of deductions you can claim that can potentially put you in a lower tax bracket or simply reduce the overall amount of tax you must pay.

If you are self-employed/sole-trader then you can also deduct any expenses used entirely for generating income for your business.

You can also claim Wear and Tear allowances for your business. You can see a list of them here.

Keep in mind that if you are a self-employed individual, there are certain expenses that you cannot deduct. You can see a list of them here.

How to Calculate Your Cyprus Income Tax

To better understand how income tax is calculated in Cyprus, I'll lay down a practical example using the scenario of having a full-time office job, selling handmade candles as a side hustle, and earning rental income from an apartment with some made up figures.

Step-by-Step Example of Cyprus Income Tax Calculation

You can calculate your income tax using our tax calculator.

Registration, Returns and Payment of Income Tax in Cyprus

Step-by-Step Guide to Registering for Income Tax in Cyprus

As an individual, to submit your tax returns and pay your income tax, you have to get a Tax Identification Number. To do that:

How to File Your Cyprus Income Tax Returns Online

Tax returns are submitted online through TaxisNet.

The deadline is the 31st of July of the following year.

From 2020 and onwards, all individuals who have taxable income are generally required to submit personal income tax returns every year. This obligation applies even if, after deductions, you are not liable to pay any income taxes.

However, the Council of Ministers can issue a decree each year that exempts individuals whose gross income does not exceed €19,500 from the obligation to submit a tax return.

In the last few years, the Council has issued such decrees, exempting these individuals. Nonetheless, there is no guarantee that this exemption will be issued every year, so you should be aware of this and check annually whether you must submit tax returns.

The deadline for submitting your tax returns for 2023 has been extended to the 31st of October 2024.

Multiple Income Sources

Suppose you are both an employee and self-employed, meaning that you have income from a salary as well as regular income from a self-employed business. In that case, you must complete both an income tax return as an employee as well as an income tax return as a self-employed person.

You can find a detailed guide on how to complete your income tax return here.

Payment of Cyprus Income Tax: What You Need to Know

Once you have submitted your tax returns, you will then have to pay the applicable taxes, if any.

You can find a detailed guide on how to pay your income tax here .

How PAYE Works for Employees in Cyprus

Employees whose net salary is over €19,500 and are therefore subject to income tax, don't have to pay it themselves.

Instead, there is the PAYE (Pay As You Earn) system in Cyprus, where income taxes owed by employees are paid directly through their employers. At the beginning of each year, employees must complete the form T.D.59A, detailing all earnings and personal allowances, and give it to their employer.

Using the information provided in that form, the employer can calculate your tax obligation. Each month, the employer will deduct the appropriate amount of tax from your salary and pay it to the Tax Department on your behalf. PAYE payments must be made by the end of the following month for which they are due.

Confirming Correct Income Tax Payments

However, this does not mean that you're not required to submit tax returns. Until the 31st of July each year, employees must file their tax returns to confirm they've paid the correct amount of income tax. If more tax is owed, they pay the difference; if they overpaid, they receive a refund.

Provisional Tax: What Self-Employed Individuals Need to Know

If you're self-employed and you have income other than salaries, dividends, pensions and interest, such as profits from your sole trader business or rental income, you are required to pay provisional tax, which involves paying your taxes in advance based on your estimated income for the year.

This is also applicable to employees who have income other than their salary from employment, such as rental income. Provisional Tax payment should be made in two equal instalments on the 31st of July and the 31st of December.

Wrong Estimations of Provisional Tax

In case that, during the year you realise that you have either overestimated or underestimated your income for the year then you can submit a revised provisional tax calculation by the 31st December through the Tax Portal.

Underestimation of Income Tax

However, if your initially declared taxable income was less than 75% of your actual income for the year and you haven't submitted a revised tax calculation by December 31st, you will be liable to pay a 10% fine on the difference between the final tax due and the provisional tax paid.

Overestimation of Income Tax

On the contrary, if you overestimated your taxable income and ended up paying more provisional tax than you owed, you can claim a refund for the excess tax paid.

High Income Self Employed Individuals

Self-employed individuals whose annual turnover exceeds €70,000 must prepare audited financial statements. Also the tax returns date of submission is the 31 March of the second year following that tax year.

Why Understanding Cyprus Income Tax is Important

Understanding Cyprus income tax is important whether you're employed or self-employed. It helps you make smarter financial moves by taking advantage of deductions and exemptions, while also staying on top of registrations and filings.

It's useful to know how to take care of these tasks yourself to save some money, especially if you have the time, which is why we created this guide. But if you don't want to deal with all the paperwork, make sure to reach out to us today and we'll take care of everything for you.

P.S. If you're self-employed, pay attention to your income. If it's high, registering a company could help you save on taxes, and with our platform, you can set up a company in minutes, saving you you money that you can reinvest in your business.

FAQ: Common Questions About This Topic

If I work remotely for a foreign company, how is my income taxed in Cyprus?

If you're a Cyprus tax resident, your foreign employment income is taxable in Cyprus. However, you may be eligible for the non-dom status and could qualify for the special tax exemption for non-residents starting employment (20% or 50% depending on your income level).

How do I prove my tax residency status to my foreign employer?

You can request a Tax Residency Certificate from the Cyprus Tax Department through the Tax For All portal. This document confirms your tax residency status and can be used for foreign employers or tax authorities.

What happens if I miss the July 31st deadline for tax returns?

Late submission results in an immediate €100 penalty. For late payment of taxes due, there is a 5% penalty on the unpaid amount. If the tax remains unpaid two months after the deadline, an additional 5% penalty is imposed.

Can I deduct my home office expenses if I work remotely?

If you're self-employed, you can deduct reasonable home office expenses proportionate to the space used for business. However, employees working remotely generally cannot deduct home office expenses under Cyprus tax law.

How are cryptocurrency gains taxed in Cyprus?

Currently, Cyprus doesn't have specific legislation for cryptocurrency taxation. However, if trading cryptocurrencies is your primary business activity, the profits may be subject to income tax.

What if my income varies significantly throughout the year?

For variable income, especially for self-employed individuals, you can submit a revised provisional tax calculation by December 31st if your initial estimate was incorrect. This helps avoid the 10% penalty for underestimation.

What happens if I receive income in a foreign currency?

You'll need to convert foreign currency income to euros using the exchange rate on the date you received the income. Foreign exchange gains from this conversion are typically exempt from income tax.

How do I handle income from multiple EU countries?

If you're a Cyprus tax resident, you must declare worldwide income. However, Cyprus has double tax treaties with many countries to prevent double taxation. You may need to claim foreign tax credits for taxes paid abroad.

Are there any special deductions for first-time employees?

While there's no specific deduction for first-time employees, new residents coming to work in Cyprus can benefit from special exemptions (20% or 50% of employment income) depending on their salary level.

How is pension income from abroad taxed in Cyprus?

Foreign pension income is taxed at a flat rate of 5% on amounts over €3,420. However, you can choose to be taxed at the normal progressive tax rates if this would be more beneficial.

What expenses can I deduct if I'm renting out property?

Beyond the standard 20% rental income deduction, you can claim mortgage interest payments if the loan was used to acquire the rental property. Repairs, insurance, and property management fees may also be deductible.

How do I correct a mistake in my submitted tax return?

You can submit a revised tax return through the Tax For All portal if you discover errors. If the correction results in additional tax due, it's better to do this proactively to minimize potential penalties.

What documentation do I need to keep for tax purposes?

Keep all income documents (payslips, invoices, rental agreements), expense receipts, bank statements, and any correspondence with the tax department for at least 6 years. Digital copies are acceptable if they're clearly organized and readable.