VAT on Property

VAT is not applicable for properties with permits before 01/05/2004 or on any Land acquisition.

Newly built properties for which a proper application for Planning permission has been submitted to the relative responsible authority after the 1st may 2004 (when Cyprus joined EU) are subject to VAT at the standard rate (currently 15%). However, if the property is purchased for permanent residence part of the VAT can be refunded by the Government in a form of a special grant. This grant may be given to persons who purchase or erect a new building which is being used as their main and permanent residence provided that:

The building is new and used for the first time.

The total size of the covered areas of the residence does not exceed 250m2.

The applicant is a person aged 18 years and above, being a Cypriot Citizen or a Citizen of a member state of the European Union who is permanently residing in the Republic of Cyprus and has no other property in Cyrpus that is used as a permanent residence.

Upon receipt of the grant, the beneficiary is obliged to use the property as his/her main and permanent residence for a ten year period.

Cyprus Residence and Liability for Taxation

Residence is defined as presence in the country for more than 183 days in a calendar year (which is the tax year), and then applies to the whole year. Resident individuals are subject to tax on their world-wide income; non-residents are taxed only on certain types of income arising in Cyprus.

After the EU finally agreed its Tax Directive in June, 2003, Cyprus announced that it would implement the 'information sharing' provision of the Directive on entry to the Union in 2004. This means that information about savings returns received in Cyprus by nationals of other EU countries is now being passed to the tax authorities in the individuals' home countries.

Cyprus Income Tax

Income tax is levied on world-wide income. Such income includes employment income (including benefits), profits from a business activity, rentals from immoveable property and royalties, and pensions received (pensions from abroad may be taxed at the rate of 5% for amounts in excess of a designated amount, see below).

Various deductions are permitted, including some in respect of share ownership; and there are personal allowances. Married persons are taxed separately.

Non-residents of Cyprus are taxed in Cyprus on employment income (including benefits), in relation to services rendered in Cyprus, profits from a business activity which is carried out through a permanent establishment in Cyprus, rentals from immoveable property situated in Cyprus, and pensions in respect of employment exercised in Cyprus, with the exception of pension paid from a fund established by the Government or local authority.

Chargeable income (after all allowances) is taxed (from 2008) as follows:

- up to EUR19,500 nil
- from EUR19,501-28,000 20%
- from EUR28,001-36,300 25%
- above EUR36,300 30%

Pension income is charged at 5% on amounts over EUR3,417 per annum provided that the individual is neither Cypriot, nor has economic activity on the island.

A 'Special Defence Contribution' applies to certain types of income as follows:

3% on: interest received by provident funds; the profits of semi-governmental bodies; rental income received by a Cyprus individual or corporate resident from immovable property (after deducting 25%); interest received by an individual with a yearly income below EUR11,960 (at the time of writing) and interest received by individuals from Government bonds and Government savings certificates.

10% on: interest received by a legal entity unrelated to its normal business or by an individual with income over EUR11,960 per annum
.
15% on:dividends received by individuals in Cyprus.

Under legislation adopted in late 2009, interest received by individuals through business operations will be subject to regular income tax, but not the Special Defence Contribution; non-business interest income will be subject to the SDC at 10%, but not to income tax.

Certain other special regimes operate for non-resident entertainers, sportspeople and experts.

Individuals exercising an office or employment in Cyprus, whose residence was outside Cyprus before the commencement of the employment, are granted a tax exemption for 20% of their remuneration, or EUR8,000 (at the time of writing), whichever is the lower, during a period of three years starting at the beginning of the year following the year of commencement of their employment.