Updated: October 2025
This guide explains how the Cyprus Tax System works for individuals and companies in 2025, highlighting residency rules, dividend/interest treatment, corporate taxation, double-tax treaties, the IP Box regime, VAT updates, payroll contributions, capital gains tax, and a brief FAQ.
Cyprus Tax System
The Cyprus Tax System is one of the most appealing systems within Europe. It provides excellent benefits for investment with its low Corporation Tax and Double Tax Treaty as well as its tax deductions for investment into startups. It is easy to understand why the Cyprus Tax System helps welcome so many investors to the island—especially as it is a member of the European Union, meaning investors are offered access to all EU Tax Directives.
With any subject regarding tax, especially specialized tax, you should always seek advice from your financial adviser as they will be able to provide personalized information. However, we will give you a basic guide to the Cyprus Tax System with data, indicators and statistics.
Personal Income Tax Rates
The Cyprus Tax System works with Personal Income Tax using the following method: An individual who is tax resident in Cyprus is taxed on income accruing or arising from sources both within and outside Cyprus. An individual who is not tax resident in Cyprus is only taxed on income accruing or arising from sources within Cyprus.
Tax Residency
An individual who spends more than 183 days in a tax year (1 January to 31 December) in Cyprus is a tax resident of Cyprus. An individual can also be deemed tax resident under the 60-day rule provided that, cumulatively, they: (i) are not tax resident in any other state; (ii) do not reside in any other single state for more than 183 days; (iii) spend at least 60 days in Cyprus; and (iv) maintain Cyprus ties (own/rent a permanent home and have business/employment/office in Cyprus during the year).
Learn more with KPMG’s Cyprus Tax Residency and Non-Dom rules
Exemptions
Certain income is exempt from personal income tax in Cyprus. This includes, but is not limited to, dividend income and interest income unless the income arises in the ordinary course of business—both are wholly exempt from income tax.
2025 clarification (SDC & non-dom): While dividends and passive interest are exempt from income tax, Special Defence Contribution (SDC) may apply to domiciled Cyprus tax residents (e.g., 17% on dividends; 17% on interest; 3% on 75% of gross rent, in addition to PIT on net rent). Non-dom tax residents are generally exempt from SDC on dividends and interest.
Payroll snapshot 2025 (for context): Social Insurance contributions are 8.8% employee / 8.8% employer, subject to a €66,612 annual cap (€5,551/month); employers also fund Social Cohesion (2% no cap), HRDA (0.5%) and Redundancy (1.2%). GHS (GeSY) contributions are 2.65% employee / 2.90% employer on relevant earnings.
Cyprus Tax System: Capital Gains Tax
Capital Gains Tax is currently charged at a rate of 20% on the following:
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Gains from the disposal of immovable property situated in Cyprus
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Gains from the disposal of shares of companies not listed on a recognised stock exchange which own immovable property situated in Cyprus
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Gains from the disposal of shares of companies which indirectly own immovable property situated in Cyprus and derive at least 50% of their market value from such immovable property
The following are deducted from the sale proceeds in calculating the capital gain:
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The value of the immovable property as at 1 January 1980 or cost of the immovable property if the date of acquisition is later, as adjusted for inflation
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The cost of any accepted capital additions and improvements as adjusted for inflation
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Expenditure incurred solely in respect of the gain (e.g. transfer fees, approved real estate agent commission, interest expense)
Exemptions
Under the law, there are certain disposals which are not subject to Capital Gains Tax. These include transfers arising on death and gifts made from parent to child or between spouses as well as between up to third degree relatives.
Allowances
Individuals are entitled to lifetime allowances such as: disposal of principal private residence €85.430 (subject to conditions), disposal of agricultural land by a farmer €25.629, and other disposals €17.086 (overall lifetime cap €85.430).
Find out more at PWC’s Other Taxes
Reducing your Capital Gains Tax Liability
There are perfectly legal ways of reducing your Capital Gains Tax liability. These include but are not limited to:
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Capital losses may be used to offset a capital gain
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If you are selling your property partly or fully furnished, come to an arrangement with your buyer whereby they purchase any furniture, etc. using a separate agreement. This will reduce your Capital Gains Tax liability as the items included in the agreement should not be liable for Capital Gains Tax
Corporation Tax
In the Cyprus Tax System, the corporate income tax (CIT) rate is 12.5%; this is one of the lowest corporate tax rates in the European Union which is why so many investors favour Cyprus.
2025 update (Pillar Two): Cyprus has implemented the EU Global Minimum Tax rules. For financial years beginning on or after 31 December 2024, large multinational and large domestic groups (generally €750m+ consolidated revenue) are subject to a 15% minimum effective tax (QDMTT/DMTT/GloBE). The statutory CIT for other taxpayers remains 12.5%.
Tax Residency
A company is tax resident in Cyprus if the company is managed and controlled from Cyprus. A Cyprus-resident company is taxed on worldwide income; a non-resident company is taxed on Cyprus-source income.
Exemptions
There are several sources of income that are exempt from income tax. These include dividend income and interest income provided they do not arise from the ordinary activities of the business. (Note: separate anti-avoidance/SDC provisions and deemed-dividend rules may apply in specific cases.)
Deductible Expenses
All expenses incurred during business operations are deductible when calculating the tax liability of a company. Expenses are deductible at different rates depending upon the expense type. Your financial advisor is best placed to ensure the company maximizes tax efficiency.
Double Tax Treaty
When an individual or business invests in a foreign country, the issue of which country should tax the investor’s earnings arises. Countries therefore sign Double Tax Treaties (DTTs), also known as Double Tax Agreements, with each other to address these and other questions. A key aim of these agreements is to prevent the same income being taxed twice.
Cyprus maintains 65+ Double Tax Treaties; see the official list for current signatories.
Intellectual Property
Intellectual Property (IP) can be one of the most valuable assets of an organization. The Cyprus Tax System offers a tax-efficient EU location together with robust IP protection.
The IP tax regime covers a wide range of intangibles including copyrights (e.g., sound recordings, films, publications, software programs, literary works) as well as trademarks and patented inventions.
Tax Benefits of Cypriot Resident IP Companies
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80% of qualifying profit from eligible IP (net of direct expenses) is exempt from tax under the modified nexus approach—yielding an effective rate of ~2.5% on qualifying income
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80% of profit from the disposal of qualifying IP (net of direct expenses) is exempt
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Capital expenditure for the acquisition or development of IP is deductible in the year incurred and the following 4 years on a straight-line basis
Value Added Tax
Value Added Tax (VAT) is imposed on the supply of all goods and services in Cyprus and on the acquisition of goods from other members of the European Union and on the importation of goods from third countries.
In Summary
The Cyprus Tax System remains investor-friendly: CIT 12.5% for most companies, with Pillar Two 15% minimum applying only to large groups (≈€750m+ revenue).
Residency is clear and flexible: qualify via the 183-day or 60-day rule, provided you keep Cyprus ties (home + work/office).
For individuals, dividends and passive interest are exempt from income tax; SDC may apply to domiciled residents, while non-dom residents are generally exempt from SDC on these sources.
CGT 20% applies mainly to Cyprus immovable property; key lifetime allowances include up to €85,430 for a principal private residence (conditions apply).
VAT: standard 19%, with reduced 9% / 5% / 3% and 0% categories; the 5% primary residence rate applies to the first 130 m² within current thresholds, with excess area at 19%.
The IP Box (modified nexus) effectively taxes qualifying IP income at ~2.5% after the 80% deduction.
Payroll at a glance: Social Insurance 8.8% employee / 8.8% employer (with caps) and GHS 2.65% / 2.90%.
Cyprus maintains 65+ Double Tax Treaties, supporting cross-border structuring and withholding tax efficiency.
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