Expats in Cyprus facing higher tax bills in 2013

by Ray Clancy on June 17, 2013

Expats in Cyprus facing higher tax bills in 2013

Expats in Cyprus facing higher tax bills in 2013

Expats living in Cyprus are facing higher tax levels due to bail out terms agreed between the government and the European Central Bank, European Commission and International Monetary Fund. In recent years expats living and working on the Mediterranean island had steady tax levels while those in Spain, Portugal and France saw tax levels rising due to austerity measures.

In 2011 and 2012 there were some small tax increases but nothing significant. Now this is changing and expats are facing a double whammy from the banking crisis and tax hikes. According to expat specialists Blevins Franks a number of tax rises apply from 2013. Firstly the special defence contribution on bank interest has shot up from 15% to 30%. ‘If you are resident in Cyprus, you are liable to this tax on your worldwide bank interest, including that earned in offshore centres. The new rate will apply to interest received, or deemed received, or credited from 29th April onwards,’ explained a spokesman.

‘Your Cyprus bank should deduct the tax at source. When it comes to interest earned overseas, you need to declare it each year and pay tax accordingly,’ he added. The reduced rate of 3% remains unchanged and applies to individuals whose annual income totals less than €12,000, and income earned from Cyprus bonds and provident funds. Prior to September 2011 the bank interest rate was 10%, then it increased to 15% and now has reached 30%. ‘This is a huge increase in a short space of time. You will now pay 200% more tax on your bank interest than you did two years ago,’ the spokesman pointed out.

In comparison, the tax rate in Portugal, which also has bailout terms imposed on it by the Troika, is now 28%, while in Spain it ranges between 21% and 27%. In the UK, bank interest is taxed at the income tax rates, so many British expats could be shocked to find they are paying more tax on bank interest in Cyprus than they did in the UK.

Quote from ExpatForum.com : “Will the Cypriot bailout from the EU have any effect on the Expat community, particularly for the retired people living on a UK pension.”

Dividends are also subject to the defence contribution, but the rate levied remains unchanged at 20%. It had however already increased twice recently, first from 15% in 2011, then from 17% at the beginning of last year. ‘The 20% rate is high for British expats. In the UK, basic rate taxpayers are taxed at a rate of 10% on their dividend income, and this is satisfied by the notional 10% tax credit, so they pay no more tax on dividend income. Higher rate and top rate taxpayers in the UK will have further tax to pay on dividend income, although the 10% tax credit can be offset against the final liability,’ explained Blevins Franks.

Secondly, immovable property tax has been revised with effect from 2013. Every owner of Cyprus property will now pay some tax, with a minimum charge of €75. This is expected to earn the government €136 million. The tax is still based on the valuation as at 1 January 1980 with rates starting at 0.6% for the first €40,000 of the property’s value, and rise progressively to 1.9% for the excess of €3,000,000.

There have been no changes to income tax but in August 2011 a new top rate of 35% was introduced on income over €60,000. The first €19,500 remains tax free. The special 5% rate on foreign pension income remains unchanged. ‘When it comes to your savings and investments, it is time to review the way you hold your capital to see what steps you can take to protect your income from tax. There are legitimate tax efficient structures available in Cyprus, and you should take professional advice for your personal situation to see how much tax you can save,’ said the spokesman.

‘Many British expats here still have the same structures and investments they held in the UK, but what was tax efficient there is not tax efficient in Cyprus,’ he added.

{ 1 comment… read it below or add one }

Savvas October 24, 2017 at 6:12 pm

Do you have a list of current accountants we can refer to to get advise? I am planning a move to Cyprus from USA and not sure how current this situation is.

Reply

Leave a Comment

Previous post:

Next post: