Last Updated on 16th June 2025
Aside from the obvious advantages of a beautiful Mediterranean climate, lower living costs, and accessible property prices, Cyprus has long been seen as a high-demand expatriate destination owing to its beneficial tax regime and the generous allowances and exemptions many foreign nationals are entitled to.
While we’ve previously shared guidance on the Tax Implications of Moving to Cyprus From the UK, which includes advice around clarifying your tax residency position and managing asset transfers, here we’re looking more closely at the tax system and why this is perceived as so attractive.
The specific tax rates expatriates need to budget for may, of course, depend on the location and nature of their incomes, but by reviewing and calculating your liabilities and ensuring you are applying all of the tax treatments available, you could find that taxes for expats in Cyprus are dramatically lower than those in the UK.
Paying Income Tax in Cyprus as a Tax Resident
Foreign nationals who live only or primarily in Cyprus are classed as tax residents, which means you pay Cypriot income tax on all your worldwide income.
Some types of earnings, including dividends and interest, are taxed differently through the Special Defence Contributions system, which we’ll explain shortly. However, property rental incomes are currently exposed to income taxation and defence contributions, with plans to remove the SDC element in the future.
Proposals to reform most Cypriot tax rates are underway and are expected to take effect in 2026, but the impacts from an expatriate standpoint still mean that Cyprus is a highly tax-efficient place to live.
Currently, taxpayers are exempt from income tax on the first €19,500 of their income and pay a top personal income tax rate of 35% on taxable income of €60,000 or higher.
If and when those reforms are introduced, taxpayers will be exempt from paying income tax on up to €20,500 of their income. Tax rates will then start from 20% with a top rate of 35% for taxable earnings over €80,000. This compares favourably with the UK’s personal income tax bands, with an annual tax-free allowance of £12,570 and a higher tax rate of 45%.
Importantly, when comparing Cypriot taxes to those of other European countries, there is no wealth tax to account for.
Taxation Payable on Pension Incomes in Cyprus
Cyprus’s double tax agreement with the UK means that most pensions are only taxable in Cyprus, excluding government service pensions. One of the primary advantages for retirees is that they can choose how foreign pension income is taxed, with options to:
- Elect to pay a flat rate of 5% on all pension payments above a tax-exempt amount of €3,420.
- Pay tax against pension income at the normal income tax rates.
There are also exemptions against tax payable against a lump sum drawn at the start of a pension, which applies in either country.
Cypriot Special Defence Contributions and Exemptions for Interest and Dividend Incomes
As we mentioned earlier, some forms of earnings, including dividends and interest, are taxed through Special Defence Contributions (SDCs) rather than income tax, but exemptions apply to non-domiciles. In practice, most expats can continue to receive these incomes tax-free for the initial 17 years of residency.
Going forward, the current defence contrition rates are:
- 30% on interest income, reduced to 3% for earnings under €12,000
- 17% against dividends
- 3% against rental income, based on 75% of the gross income, alongside income tax obligations.
When the proposed tax reforms take effect, the SDC rate on dividends will drop from 17% to 5%, SDCs will be abolished on rental incomes, and deemed dividend distributions will no longer exist or attract an SDC liability.
This further improves the tax position of residents. However, it is important to recognise that your tax residency status and domicile position may require professional guidance, especially following UK changes that impact how non-resident citizens are categorised.
Capital Gains Tax Levies for Cypriot Expatriate Residents
Tax residents in Cyprus are only exposed to capital gains tax at a 20% rate against the sales of Cypriot properties and are exempt from the tax on proceeds arising from outside of the country.
In most cases, gains made on the sale of shares or similar assets are not subject to tax, although this excludes unlisted company shares if the organisation owns property assets in Cyprus.
Inheritance Tax Obligations in Cyprus
Cyprus does not have any form of inheritance tax or succession tax and depending on your exposure to IHT in the UK, assets can be distributed to your heirs without any obligation against the estate or the beneficiary.
That doesn’t always mean UK citizens are free of IHT altogether, depending on your residency position, but does mean that most expatriates have a far lower overall tax burden when deciding how best to prepare for succession planning.
There are also no gift taxes, which means none of the complications around gifting assets to family members or friends within a minimum timeframe apply.
Optimising Tax Allowances and Efficiencies as a Cypriot Resident
This summary guide has hopefully demonstrated the many tax benefits Cyprus provides, such as lower income tax obligations, reforms to relax taxation levies against incomes like dividends, and the flexibility of the system that enables foreign nationals to elect how their incomes are taxed in some cases.
Further aspects of the tax reform plans will also make life even more tax-friendly in Cyprus, including the removal of the current 1.5% Insurance Premium Tax, and an extension to the length of time tax losses can be carried forward – albeit with a 2.5% increase in corporate tax rates and new rules around cryptocurrency taxation.
As always, our advice at Chase Buchanan Wealth Management is to ensure you seek specialist guidance to gain clarity about how the rules and varied allowances mentioned here apply to your income, assets and estate, and have insights into the best ways to hold and structure your assets to ensure they are tax-efficient both for you and for your future beneficiaries.
All investments carry risk, including the potential loss of capital. You should carefully consider whether investing is suitable for you, taking into account your personal circumstances, financial situation, and risk tolerance.
*Information correct as at June 2025
