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Cyprus Taxation  TAXATION INFORMATION
Once a residency permit has been granted you should register with the income tax office as a taxpayer. Anyone who lives in Cyprus for more than 183 days in the year is required to pay tax on income generated in Cyprus, or from overseas.
There are two taxation schemes in operation, one for people who are employed and the other for retirees. The progressive tax rates for working taxpayers are 0% for income up to €17,086 and 30% for income of €34,172 or more. Retired people benefit from favorable tax rates with a maximum of 5% on any income of €3,417 or more. In order to qualify for this, retired people are not allowed to undertake any paid employment.
Cyprus is a signatory to a Treaty for the Prevention of Double Taxation along with many other countries all over the world. This Treaty, in principle, enables offsetting tax paid in one of 2 countries against the tax payable in the other in this way preventing double taxation. It is important to understand that the Double Taxation Prevention Treaty takes precedence over the Cyprus Income Tax Ordinance. In other words, if certain income is taxable under the Cyprus Income Tax Ordinance but there is an exemption or reduced tax, under any Taxation Treaty the income is taxed but only according to provisions of the Treaty.
Inheritance / Gift Tax
There is no tax on gifts. Inheritance tax and estate duty have been abolished.
Tax Exempt Income
The following forms of income are exempt from income tax: an individuals' income up to €17,086 per resident; dividend and interest income; an individual who receives a pension in Cyprus from overseas employment up to a limit of €3,417; gain from sale of securities; compensation for death and injury and part of Capital Gains that are received by an individual on the sale of real estate (see Capital Gains paragraph for further information). Tax relief in Cyprus relates to the income of an individual for example; donations – with document proof, the whole amount; Life Insurance – up to 1/6th of the taxable income; child grant – a grant of €2,563 for a child taking higher education; professional membership dues – the whole amount ; income from rent – 20% of the income is exempt.
Capital Gains for an individual
The profit on the sale of real estate or of shares in a company that owns real estate is taxable up to 20%; tax must be paid on the difference between the cost adjusted to the increase in the Index up until the date of the sale and the sale price; there is a basic exemption for an individual (€17,086) which is conditional on the class of the real estate; the amount of exemption on the sale of a residential property is up to a maximum of €85,430 with the condition that it has been resided in 5 years prior to sale. Note that if you are planning to sell your home in Cyprus and return to the UK you may be required to pay some Capital Gains Tax to the UK authorities as well as the Cypriot authorities. However in the UK authorities may deduct any Capital Gains you may have paid in Cyprus so make sure you take all your paperwork with you.
Reducing Capital Gains Liability
‘Under the table’ payments are of course illegal however there are perfectly legal ways to reduce this tax. Capital losses may be used to offset the gain or if you are selling your property partly or fully furnished, an arrangement can be made with the new purchaser whereby the furniture can be purchased using a separate agreement. This will reduce the Capital Gains Tax liability as the items in that agreement should not be liable to Capital Gains Tax.
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