Blogs • October 29, 2025 • 9 Min

What Residents Need to Know About Cyprus's Tax System in 2025

Cyprus isn’t just sun, sea, and slow-roasted souvlaki, it’s also one of the more lesser-known competitive tax systems in Europe. While others chase flashy reforms, Cyprus has built a system that attracts global investors, expats, and entrepreneurs with minimal noise and maximum effect. With 65 double tax treaties and a flexible approach to residency, Cyprus is becoming a strategic base for those wanting to keep more of what they earn, without sacrificing EU credibility. Let’s break it all down. Starting with who counts as a tax resident, and why that matters. Overview of Cyprus's Tax System Cyprus has carved out a reputation for being one of the most tax-efficient jurisdictions in the EU, without compromising on transparency or compliance with OECD and EU rules. Key Tax Features at a Glance Recent Tax Policy Developments Green Tax Reform Initiatives Cyprus has begun aligning its tax policies with EU environmental goals, introducing discussions around carbon taxation and pollution-linked levies. These reforms are in planning stages, with no changes to personal or corporate income tax yet. Increased Scrutiny on Substance Requirements Following EU guidelines, authorities now emphasize genuine economic presence for companies. This affects holding companies and IP structures, especially those used by international groups. Digital Nomad Visa Extension While not strictly a tax reform, the residency-linked tax benefits have drawn attention from remote workers who can now stay longer and benefit from Cyprus’s favorable personal tax rules. Updated Transfer Pricing Rules In line with OECD recommendations, Cyprus has tightened reporting obligations for related-party transactions. This primarily affects multinationals and group structures. Cyprus Tax Residency Rules The country offers two main pathways to qualify as a tax resident, along with a special status for non-domiciled individuals that can lead to significant tax advantages. 183-Day Rule Explained The traditional route to becoming a tax resident in Cyprus is simple: If you spend more than 183 days in Cyprus in a calendar year, you are considered a tax resident. No further conditions apply. This rule is particularly relevant for individuals who live, work, or retire in Cyprus full-time. Once tax residency is established under this rule, you’re taxed on worldwide income, subject to applicable exemptions and treaties. 60-Day Rule for High-Income, Mobile Individuals Introduced in 2017, the 60-day rule offers an alternative for those who don’t want or need to spend half the year in Cyprus but still want to benefit from its tax system. To qualify one should: Stay at least 60 days in Cyprus during the calendar year Carry out business or hold a role in a Cyprus-based company Not be a tax resident in any other country Maintain a residential property (owned or rented) in Cyprus Non-Dom Tax Status The “non-dom” regime in Cyprus is especially attractive to new residents, particularly expats and HNWIs. Here’s why: If you were not born in Cyprus and haven’t lived there for 17 of the last 20 years, you may qualify as a non-domiciled tax resident. Benefits include: No tax on dividends and interest (even if received in Cyprus) No Special Defence Contribution (SDC) on qualifying income No wealth, inheritance, or gift tax Personal Income Tax in Cyprus Once you become a tax resident in Cyprus, your income is subject to the island’s progressive personal income tax system. But here’s the upside: the structure is generous, especially for low to mid earners, and there are multiple exemptions and special regimes that benefit both locals and expats. Progressive Tax Rates Structure Cyprus uses a progressive income tax system, which means you pay more as you earn more, but only on the portion of income that exceeds each threshold. Key Insight: Income up to €19,500 is completely tax-free. This makes Cyprus particularly attractive for retirees, freelancers, and remote workers with moderate incomes. Tax-Exempt Income Categories Dividends and Interest: Tax-exempt for non-domiciled residents (zero Special Defence Contribution). Lump Sum Payments from Provident or Pension Funds: Exempt under certain conditions. Capital Gains (Outside of Cyprus Real Estate): Not taxed unless they relate to property located in Cyprus. Employment Income Outside Cyprus: Exempt if the individual spends over 90 days working abroad for a Cyprus employer. Special Tax Regime for Expatriates To attract international talent and executives, Cyprus offers a number of targeted incentives: 50% Tax Deduction If your annual income exceeds €55,000, 50% of that income is tax-free for the first 17 years of employment in Cyprus. This applies to new residents who haven’t lived in Cyprus for at least 10 years. 20% Tax Deduction or €8,550 (whichever is lower) For lower-income earners (<€55,000), this older incentive still applies. It’s available for five years and is being phased out in favour of the new scheme. Pension Income Treatment Foreign pension income can be taxed either: At a flat rate of 5% on amounts over €3,420 annually, or Under the progressive income tax regime mentioned above You can choose annually which system is more favourable to you. Corporate Tax Benefits in Cyprus Cyprus applies a flat corporate tax rate of 12.5%, one of the lowest in the European Union. Key Point: This rate applies to net profits, not gross revenue. Proper structuring and expense management can therefore significantly reduce a business’s tax liability. Tax Incentives for International Business Cyprus’s tax system is optimized for cross-border operations. Key incentives include: No Withholding Tax on dividends, interest, or royalties paid to non-residents. Access to EU Directives for tax-free transfers within the EU (e.g. Parent-Subsidiary and Interest-Royalties Directives). Group Loss Relief: Group companies can offset profits against each other’s losses (under certain conditions). No Controlled Foreign Company (CFC) Rules for companies with real economic substance. Holding Company Advantages No capital gains tax on the sale of shares (except if underlying assets are Cyprus real estate). Dividend income received by Cyprus holding companies is often exempt from tax, especially if the paying entity is subject to tax in its home jurisdiction. Access to double tax treaties, allowing for tax-efficient repatriation of profits. Double Tax Treaties and International Aspects A double tax treaty ensures that the same income isn’t taxed twice, once in the source country, and again in Cyprus. These treaties typically cover income such as: Employment salaries Dividends Interest Royalties Pensions Business profits Cyprus’s treaties follow the OECD model, which means they offer clear, standard rules on which country gets taxing rights. They’re especially helpful for residents who earn income abroad or businesses receiving foreign payments. Countries covered include the UK, Germany, France, India, the UAE, China, South Africa, and dozens more. Foreign Income: How It’s Treated in Cyprus Cyprus tax residents are taxed on their worldwide income, but thanks to the non-dom regime and DTTs, most foreign income can be exempt, reduced, or deferred. For instance: Foreign dividends and interest are not taxed at all for non-domiciled residents. Overseas pension income can be taxed at a flat rate of 5% (if preferred over progressive rates). Employment income earned abroad may be exempt if tied to a Cyprus employer and the work is performed outside Cyprus for over 90 days in a tax year. Remittance Basis in Cyprus Unlike some countries that tax only what you remit (i.e. bring into the country), Cyprus uses a clear residency-based approach. Once you’re a tax resident, your global income is in scope, but a combination of exemptions, non-dom benefits, and treaty relief means you might still pay very little tax, even on significant foreign earnings. Value Added Tax (VAT) System Cyprus applies VAT in line with EU directives, so if you're used to living or doing business in Europe, it’s a familiar system, but with a few local quirks worth noting. VAT Rates Standard Rate: 19% Reduced Rates: 9% (e.g., hotel services), 5% (e.g., basic food, books, first home purchase) Zero Rate: Applies to exports and some international transport services Who Needs to Register? If your business exceeds €15,600 in annual turnover, VAT registration is mandatory. Voluntary registration is allowed below that threshold, especially for companies that want to claim input VAT on startup expenses. Common VAT-Exempt Activities Certain activities are fully VAT-exempt, including: Financial services Education Health and medical services Rental of residential properties Tax Compliance and Reporting in Cyprus Cyprus keeps its tax compliance relatively straightforward, but staying on top of key deadlines is essential if you want to avoid penalties or interest. Annual Filing Individuals: Must file personal income tax returns electronically if their annual income exceeds €19,500. Companies: File audited financial statements and tax returns (Form TD4) within 12 months after the end of the tax year. Payment Deadlines Provisional Tax (Companies/Self-employed): Paid in two instalments, July 31 and December 31. Final Tax Balancing Payment: Due by August 1 of the following year. Professional Support Most individuals and businesses use tax advisors or accounting firms for filings. This is common practice, especially when dealing with non-dom status, international income, or complex structures. Special Tax Incentives for Investors Cyprus uses targeted incentives to attract fresh capital, innovation, and entrepreneurial talent. These aren't blanket tax breaks, they're designed for people building something here. Golden Visa Tax Perks Residency through property investment doesn’t automatically make you a tax resident, but combine it with the 60-day rule, and you could access non-dom status and its full range of tax exemptions. Start-Up Incentives New businesses in innovative sectors can benefit from deductions on R&D spending, accelerated depreciation, and reduced tax on qualified intellectual property through the IP Box regime. R&D and Innovation Reliefs Expenditures on research, software development, and product innovation enjoy enhanced deductions, making Cyprus appealing to tech entrepreneurs and early-stage founders. Building in Cyprus: Where Lifestyle and Tax Planning Meet Choosing where to live or invest isn't just about the numbers, it’s about structure, simplicity, and sustainability. Cyprus offers all three. Whether you're relocating your family, optimizing international income, or scaling a business, the tax framework here gives you the space to plan with clarity. And if you're considering Cyprus residency or citizenship through investment or simply want a tax structure that works harder for you, Savory & Partners can guide you through every step. Let’s make your next move a strategic one. FAQs on Cyprus Taxation 1. What are the current personal income tax rates in Cyprus? Cyprus uses a progressive tax system with no tax on annual income up to €19,500. Rates then increase in brackets, topping out at 35% for income above €60,000. 2. How does the 60-day tax residency rule work? An individual qualifies for Cyprus tax residency under the 60-day rule if they stay in Cyprus for at least 60 days, don’t reside elsewhere for over 183 days, maintain a property in Cyprus, and work with or for a Cyprus-based company. 3. What is the standard VAT rate in Cyprus? Cyprus applies a standard VAT rate of 19%, with reduced rates of 0%, 3%, 5%, and 9% on specific goods and services like food, books, and hotels. 4. How tax-friendly is Cyprus? Very. In 2024 for example, the government abolished the annual company fee, reducing overheads for Cyprus-registered businesses. 5. Does Cyprus have double tax agreements in place? Cyprus has 65 double tax treaties, including a 2024 treaty signed with Oman, helping prevent double taxation on cross-border income. References PwC Cyprus. (2025). Tax Facts & Figures 2025 – Cyprus. Retrieved from https://www.pwc.com.cy/en/publications/assets/tff-eng-2025.pdf European Commission. (2025). VAT Rates Applied in Cyprus. Retrieved from https://taxation-customs.ec.europa.eu/vat-rates_en OECD. (2025). Cyprus – International Tax Agreements. Retrieved from https://www.oecd.org/tax/treaties/