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Countries under the double taxation relief agreement with Cyprus

The U.K and Cyprus double taxation Treaty: There are substantial tax advantages for U.K. citizens retiring to Cyprus. This is unique because it enables United Kingdom pensioners to remit both government as well as private sector occupational pensions to Cyprus free of withholding taxes in the United Kingdom.

Basically all other double taxation treaties for government pensions are almost always subject to withholding taxes at source. Hence the relief offered to British government pensioners resident in Cyprus is unique to Cyprus and generally not available elsewhere under the terms of other U.K. double taxation treaties.

Similarly foreign retirees living in Cyprus are taxed at only 1/10th of the local rate. Foreign retirees pay income tax at the rate of 5% per annum on all imported pensions, with an annual exemption of the first CYP 2,000.
Agreements exist with most countries of the European Union, as well as other countries throughout the world. These are listed below:

1: The Treaty applicable is between Cyprus and Russia and the former communist countries: Armenia, Belarus, Kyrghystan, Moldova, Tajikistan, Ukraine and Uzbekistan.
2: This treaty applies to the Republic of Serbia and Montenegro, Slovenia and Croatia.
Out of the 26 Treaties concluded by Cyprus, only 4 countries (Canada, France, UK and USA) have exclusions regarding Cyprus offshore entities. However, even these Treaties can be used advantageously with some creative and careful tax planning. Further information can be obtained upon request.

Immovable Property Tax
With regard to the purchase of immovable property in Cyprus, approval is required from the Central Bank on the transfer of property to aliens. Such approval is granted if it can be proved by the applicant that funds for the purchase were imported from abroad. Note that without the approval, on a subsequent sale, permission to remit the proceeds out of Cyprus will not be allowed.
The annual immovable property ownership tax is based upon the value of the property. Every registered owner whose property exceeds CYP 100,000 must submit a declaration of immovable property and pay the respective tax every year before the 30th of September.

Tax Benefits and Duty Privileges (Duty Free Imports)
The United Kingdom maintains a reciprocal agreement with Cyprus in respect of National Insurance pensions benefits which in the hands of foreign retirees living in Cyprus remain index linked.

Cyprus levies taxation only on a remittance basis, that is, it taxes only assets that are brought into Cyprus, rather than the more punitive system of taxation on world-arising income that is practiced in many other countries including the U.K. and U.S.A. as well as Spain and Portugal. Residents of Cyprus can thus legally hold assets tax free in banks in tax havens such as the Isle of Man and Jersey, and suffer no taxation on bank interest or dividend income remaining outside Cyprus. No capital gains tax is charged on the remittance of capital assets to Cyprus such as money needed for the purchase of property and other similar capital assets such as motor vehicles.
The legal system in Cyprus is largely based on the British system and safe guards the rights of purchasers in many ways. The Cyprus land registry provides a simple and effective legal instrument for specific performance like the above:
Once the contract of sale is signed and the deposit is paid, the contract is registered at the land registry. This procedure protects the ownership rights until the title deeds are issued and transferred to the buyer's name. The contract in the hands of the land registry can not be withdrawn by anyone, the property can not be leased, sold, transferred or mortgaged. Only the purchaser can alter this status.
Europeans who become permanent residents in Cyprus and own a car in their country for at least six months, can bring their car to Cyprus without paying import tax. For retired couples there is an additional concession of two duty free cars.
Furniture can be imported free of any taxes by Europeans or Non-Europeans who become permanent residents provided that they are for personal use and are not newly bought (i.e. they have been used for a reasonable amount of time).

Capital Gains Tax
On disposal of a property, capital gains tax will be payable at the rate of 20% on the gain with the first CYP 10,000 being exempt for each person.
On top of this allowance, the seller is entitled to a further allowance regarding the transfer fees paid, inflation rate per year and the cost of any additions made to the house.
Gains room the disposal of a dwelling house which exempt it up to CYP 50,000 in total if the owner resides in it continuously for at least five year prior to disposal.

Income Tax
There are two groups of taxed income:

• Those that have income from other sources other than pension, are entitled to pay 5% income tax, exempt the first CYP 2,000.

• Those that have income from their pensions are entitled to pay 5% income tax, exempt the first CYP 6,000.

Pension Taxation
According to the Cyprus Tax system, it is obliged to declare income from pensions to the tax authorities. There are two methods of choosing how pension can be taxed. These are outlined below:
1st Method

 2nd Method

Note: The information provided above should be used as a guideline only, and can vary with regard to individual circumstances. For further information, or advice contact us.

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