Cyprus Tax System Overview in 2025

As a strategically located island nation in the Eastern Mediterranean, Cyprus continues to strengthen its position as an attractive destination for international investors and expatriates. In 2025, the country maintains a competitive and transparent tax regime designed to support economic growth, encourage innovation, and attract foreign capital. This guide provides an updated overview of Cyprus’s key tax policies, rates, and special economic zones, reflecting current regulations and practical implications for businesses and individuals.

Tax Residency and Scope of Taxation

Tax residents of Cyprus are subject to taxation on their worldwide income under a residence-based system. To qualify as a tax resident, an individual must either spend more than 183 days in Cyprus during a calendar year or meet the '60-day rule'—a provision introduced in 2017 that allows certain high-net-worth individuals who own property and work remotely to gain tax residency status without exceeding the 183-day threshold.

Non-residents, on the other hand, are taxed only on income sourced within Cyprus, such as profits from a permanent establishment or rental income from local real estate. This territorial approach makes Cyprus particularly appealing for cross-border business operations.

Main Taxes and Current Rates

Corporate Income Tax

Cyprus boasts one of the lowest corporate tax rates in the European Union at just 12.5%. This flat rate applies to all companies incorporated in Cyprus or managing their affairs from within the country. Additionally, to promote research and development (R&D), businesses can claim a 20% additional deduction on qualifying R&D expenditures—a policy effective since January 2022 with ongoing renewal through 2025.

Personal Income Tax

The personal income tax system follows a progressive structure based on annual earnings in euros. The following table outlines the applicable brackets:

Certain taxpayers may benefit from reductions of up to 50% under specific relief programs, enhancing take-home pay for eligible professionals and retirees.

Value Added Tax (VAT)

VAT is levied on the supply of goods and services, as well as on imports. Cyprus employs a tiered VAT structure:

• Standard rate: 19%
• Reduced rates: 9% and 5%
• Zero-rated supplies: Selected essentials like pharmaceuticals and basic food items

This flexible framework ensures affordability while maintaining revenue stability.

Capital Gains Tax

A flat 20% capital gains tax applies to profits derived from the disposal of immovable property located in Cyprus. Notably, gains from selling shares in most companies are exempt unless the company owns significant Cypriot real estate assets.

Defense Contribution Tax

This unique levy targets dividend income at a standard rate of 17%, withheld at source by the paying entity. However, double taxation treaties often reduce this rate to as low as 3% for qualifying non-resident shareholders. A similar 30% withholding applies to other passive income types, including interest and royalties, though treaty benefits may apply.

Rental Income Tax

Income from property rentals is taxed at a flat rate of 3%, payable by the landlord. This favorable rate supports the growing real estate leasing market, especially in urban centers like Nicosia and Limassol.

Digital Services Tax and Carbon Levies

As of 2025, Cyprus has not implemented a standalone digital services tax. Nevertheless, digital businesses remain subject to standard VAT and corporate tax rules. Regarding environmental policy, while no direct carbon tax exists, Cyprus participates fully in the EU Emissions Trading System (EU ETS), aligning with broader European decarbonization goals.

Special Economic Zones and Incentives

Free Trade and Logistics Hubs

Cyprus designates several areas as free zones to facilitate trade and logistics. These include:

• Port Free Zones: Located in Limassol and Larnaca, these hubs handle bulk agricultural imports and serve as cruise ship terminals. Goods stored here enjoy duty-free status until they enter the domestic market.
• Bonded Warehouses: Authorized local and multinational firms may establish private bonded facilities. Inventory held in these warehouses is exempt from customs duties, refugee solidarity fees, and excise taxes. Duties apply only upon domestic clearance; exports incur no charges.

Technology Parks Initiative

In July 2015, the Council of Ministers approved the creation of a national technology park aimed at fostering innovation and tech startups. While initial tenders were launched, progress has been slow. However, renewed government interest in digital transformation suggests potential revival in the near future.

Tax-Free Transactions in M&A

A significant advantage for corporate restructuring is that transfers of assets or shares in mergers and acquisitions are generally not subject to stamp duty or capital gains tax, provided statutory conditions are met. This facilitates seamless business reorganizations and group consolidations.

Why Businesses Choose Cyprus

Beyond its low tax rates, Cyprus offers extensive double tax treaties, a skilled English-speaking workforce, and EU membership advantages. Its stable legal system and strategic location between Europe, Asia, and Africa make it ideal for regional headquarters and holding companies.

For global talent and entrepreneurs, the combination of moderate living costs, high quality of life, and favorable tax treatment—including zero wealth, inheritance, or gift taxes—makes Cyprus a compelling long-term base.

SailGlobal, a leading provider of overseas human resources solutions, supports companies expanding into Cyprus with compliant payroll setup, work permit processing, and localized employment advisory services. Whether you're establishing a new entity or relocating key personnel, our team ensures smooth integration into the Cypriot business environment.