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Personal Taxation

Personal Income Tax

Basis of taxation
All Cyprus tax residents are taxed on all income accrued or derived from all sources in Cyprus and abroad. Individuals who are not tax residents of Cyprus are taxed on income accrued or derived from sources in Cyprus.

Resident in Cyprus for an individual means someone staying in Cyprus for a period or periods exceeding in aggregate 183 days in the year of assessment.

In the case of a person who is tax resident in Cyprus tax is levied on all income accruing or arising from sources both within and from outside of Cyprus including remuneration from employment.

Non-resident persons are taxed only on the income accruing or arising from sources in Cyprus including remuneration from employment exercised in Cyprus.

The new tax legislation, which came into effect on 1st January 2003, conforms with the requirements of the European Union in respect of its code of conduct for business taxation and of the OECD in its campaign against harmful tax competition.

Foreign pension is taxed at the rate of 5%. An annual exemption of € 3.417 is granted.

The following are exempt from income tax:

Social grants
The following social grants are given:
Grant of €2.563 per annum for every child receiving full time higher education in Cyprus (with certain restrictions) or full time university education outside Cyprus. Families with more than three children receive additional grant €854.
Non-deductible expenses
The following expenses are not tax deductible:  
• Business entertainment expenses including hospitality expenses
of any kind which are incurred for the purpose business 
Amount in excess of 1% of the gross of the income or €17.086 (whichever is the lower)
• Private motor vehicle expenses    The whole amount
• Professional tax  The whole amount
• Immovable property tax      The whole amount
• Interest payable or deemed to be payable in relation to the acquisition of a private motor vehicle, irrespective of whether it is used in the business or not, or other asset not used in the business. This restriction is lifted after 7 years from the date of purchase of the relevant asset. The whole amount
• Contributions to the Social Cohesion Fund  The whole amount
• Expenditure which is not supported by invoices and relevant receipts or other supporting documentation as required by the relevant Regulations The whole amount
• Wages and salaries relating to services The whole offered within the tax year on which amount contributions to the Social Insurance Fund, Redundancy Fund, Human Resource Development Fund, Social Cohesion Fund, Pension Fund and Provident Fund have not been paid in the year in which they were due, will not be tax deductible for the calculation of taxable income The whole amount

Capital Allowances
Capital allowances available for companies are also available to individuals who submit audited financial statements to the Inland Revenue.

Personal allowances
The following are deductible from income:

• Social insurance contributions, contributions to approved provident
and pension funds, the General Health Plan, contributions to medical
or other approved funds as well as insurance premiums in respect
of the life of the claimant.
The whole amount up  to 1/6 of the taxable income before this allowance
• The annual life insurance premium is restricted to 7% of the insured amount.
• Life insurance policies, in respect to the life of the claimant’s spouse, which were in existence up to the 31 December 2002 and for which the claimant was receiving a tax allowance, will continue to be deductible by the claimant.
• In the event of cancellation of a life insurance contract within 6 years from the date it was entered into, part of the life insurance premiums already given as an allowance will be taxable as follows:
- cancellation within 3 years     30%
- cancellation between 4 to 6 years    20%
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