Focus On Cyprus

Tax rises are an inevitable part of austerity measures and Cyprus is no exception. Cyprus has been under pressure from the EU to reduce the public deficit and the government introduc

Tax rises are an inevitable part of austerity measures and Cyprus is no exception. Cyprus has been under pressure from the EU to reduce the public deficit and the government introduced a number of measures last August, with more in December as part of the 2012 State Budget.

Income tax

As announced in August 2011, a new higher level of income tax was introduced on income over ?60,000 to apply to income received from January 2011. The income tax rates for both 2011 and 2012 are:

Annual Income: ?0 to ?19,500 – Tax rate: 0%

Annual Income: ?19,501 to ?28,000 – Tax rate: 20%

Annual Income: ?28,001 to ?36,300 – Tax rate: 25%

Annual Income: ?36,301 to ?60,000 – Tax rate: 30%

Annual Income: Over ?60,000 – Tax rate: 35%

The option to have overseas pension income taxed at a flat rate of 5% on the excess of ?3,420, instead of the scale rates of income tax, is still available.

Tax surcharge

Public sector employees and retirees with income over a certain level have to pay a ?special contribution? tax for the 24 months from 1st September 2011 to 31st August 2013. The December package of austerity measures imposes a similar special contribution on private sector employees and retirees and self-employed individuals. It is scheduled to apply on income received from 1st January 2012 to 31st December 2013.

The special contributions are payable according to gross monthly income (on top of the annual income tax rates listed above), and there is no limit for the amount to be contributed. The additional tax rates for the private sector are:

Monthly income: ?0 to ?2,500 – Extra tax rate: 0%

Monthly income: ?2,501 to ?3,500 – Extra tax rate: 2.5%

Monthly income: ?3,501 to ?4,500 – Extra tax rate: 3%

Monthly income: Over ?4,500 – Extra tax rate: 3.5%

If you are employed, your contribution is split 50/50 between yourself and your employer who will withhold it from your salary and remit to the Inland Revenue.

For self-employment and pension income, the amount payable should be declared in a special tax form and paid in three instalments in August, September and December, the same as with payment of provisional tax.

Defence contribution

As part of the measures announced in August, the rate charged on worldwide bank interest increased from 10% to 15% with effect from 1st September. This means you are now paying 50% more tax on your bank interest than this time last year.

At the same time the rate applied to dividends increased from 15% to 17%. The State Budget for 2012 then increased it further to 20%. The 20% rate applies on income derived from dividends from 1st January 2012.

The rate charged on rental income remains 3%. The lower 3% defence contribution rate on interest where your total income is less than ?12,000 a year remains in place.

Tax planning has become more important if you want to protect your wealth from tax. Contact us now for advice on tax planning in Cyprus.

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.