Income tax applies to both earned and unearned income.
Your gross income includes earnings from employment as well as business profits, rental income, capital gains, overseas and cost of living allowances, bonuses (annual, performance, profit share, etc.), relocation allowances, payments in kind (such as free accommodation or meals, language lessons provided for a spouse, personal company car, and children’s education), stock options and home leave or holidays paid by your employer. Not all your income is taxable, however, as certain exemptions apply.
Non-residents are liable for income tax only on income arising from within Cyprus, which includes the following:
Income or benefits from any employment, trade, business or profession practised in Cyprus;
Rental income from property in Cyprus;
A private pension from past employment in Cyprus.
Subject to the exemptions listed below, residents must pay income tax in Cyprus on both earned and unearned worldwide income.
Employees’ tax is deducted at source by employers on a monthly basis, but the self-employed must make advance payments that are offset when they make their annual declaration.
Certain types of income are exempt from income tax in Cyprus, including those listed below (which apply to both individuals and companies unless otherwise stated).
A lump sum received on retirement or as compensation for the death of or injuries to a spouse;
Profit from a permanent establishment outside Cyprus under certain circumstances;
Dividends (see note below);
Gains from trading in stocks and shares;
Interest (50 per cent for companies, whole amount for individuals – see note below);
20 per cent (for up to three years) of any earnings in Cyprus if you weren’t a resident previous to your employment;
Earnings from salaried services given outside Cyprus for more than 90 days per year if your employer is resident in Cyprus;
Profits from sale of securities (shares, bonds, etc.).
Note that, although interest and dividends are exempt from income tax, they’re still subject to the Special Contribution for Defence.
This article is an extract from Buying a Home in Cyprus from Survival Books.