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Cyprus Taxation (Individual Residents, Social Security, NHI and Reporting)



Cyprus Taxation:
  1. Tax Law
  2. Exemptions for Expatriates in the Country
  3. Social Security Contributions
  4. National Health Contributions
  5. Tax Reporting and Social Security Reporting
Tax Law

Taxable Income From
Taxable Income To
Tax Rate (%)
Cumulative Tax (Amount)
0
19,500
0
-
19,500
28,000
20
-
28,000
36,300
25
1,700
36,300
60,000
30
3,775
60,000+

35
10,885

Above tax rate table is applied for calculating tax of a Cypriot. Foreign payments are taxed at the rate of 5%. An annual exemption of Euro 3,420 is granted. The taxpayer has the option to elect to be taxed
at the normal personal tax rates as set out above. This is a choice which can be made year-on-year basis.

Cyprus source widow(er)’s pension is taxed at flat rate of 20% on amounts over Euro 19,500 or the taxpayer can elect to be taxed at the personal tax rates set out above on an annual basis.

The tax calculation for employees in Cyprus is on accumulated basis i.e. each pay period/month the total income of employee is calculated by using below formula:

= (Year-to-date taxable salary + Current Month Salary + Projection of Current Month Standard Salary) * Number of remaining months in a tax year + Income from previous employer within same tax year.

On this amount the above table is applied, to calculate monthly tax of the employee. 

Exemptions

There are two major exemptions: 50% Exemption and 20% Exemption

Rules for 50% Exemption:

  1. Tax Resident in Cyprus immediately prior to the commencement of employment.
  2. Tax Resident in Cyprus in any three of the five years preceding the year in which the employment in Cyprus began
  3. The total salary must be EUR 100,000 or more. (Here, Salary is total gross emoluments of employee)
  4. If an employee joins mid-year, calculate Gross Emoluments as if the employee joins start of the year i.e. we need to take total salary offered to the employee and not only the paid salary for the year.
  5. This exemption is applicable only for 10 years from date of commencement of employment in Cyprus.

Rule for 20% Exemption:

  1. If all conditions of 50% satisfied but salary is less than EUR 100,000. (Here, Salary is total gross emoluments of employee)
  2. If second condition of  50% Exemption is not satisfied.
  3. This exemption is applicable only for 5 years from date of commencement of employment in Cyprus.
  4. 20% Exemption is always given from second tax year of employment. 

Social Security Contributions

Type of Contribution
Employer %
Employee %
Social Insurance
8.3
8.3
Industrial Training
0.5

Redundancy Fund
1.2

Social Cohesion Fund
2.0

Holiday Fund
8.0 



The maximum level of emoluments is Euro 54,864 annually or Euro 4,572 monthly. The Social security contributions are calculated on Monthly Limits i.e. Salary of a month is taken and multiplied with the percentage to calculate the contribution amount for social security. Holiday Fund is optional for a company. 

Social Security contributions are allowed as deduction while calculating tax of the employee subject to limit. We will discuss one sample calculation below.

National Health Contributions

National Health Contributions are calculated for two departments i.e. Social Security Department for which Social Security contributions are paid and tax department to which tax contributions are paid.

The rate of contributions are 1.7% for employee and 1.85% for employer which a cap of 180,000 on salary base. These percentages are subject to change from time to time.

The contribution is made for first earnings and not equally every month. We will stop making contribution after first 180,000 salary is paid. First contributions are calculated for national health social security and then if salary remains it is calculated for tax purpose within a month.

Reporting

1. IR 7 (Annual Tax Filing. It is a single XML online filing which reports the total income, exemptions and tax. Website: https://taxisnet.mof.gov.cy/displayXmlfilesIrdPage.do?toChannel=income&info=xmlfiles&offset=0)


3. Emolument Certificate of the Year 

4. IR 59 A Certificate (It is tax calculation form which explains how to calculate tax in Cyprus)

Please read second page of IR 59 A form to know in detail all the deduction and their limits while calculating tax in Cyprus.

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