With thanks to Lee Hinton of FM Group International.
UK and Cyprus Double Taxation Agreement 2018
On the 22nd March 2018 the British High Commissioner, Matthew Kidd on behalf of the UK Government and Mr Harris Georgiades, on behalf of the Government of the Republic of Cyprus signed a new Double Taxation Agreement. This new agreement was to update and modernise the current agreement that has existed between the UK and Cyprus, whilst bringing the agreement into line with other UK and EU double taxation agreements. This new agreement has not yet entered into force. This will happen when both countries have completed their parliamentary procedures and exchanged diplomatic notes. An announcement will be made when these procedures have been completed.
The new agreement covers the full range of corporate and business taxation and in many respects is similar to the present UK and Cyprus Double Taxation Agreement that was last updated in 2002.
This document covers only five of the 30 articles included in the agreement.
Income derived from employment
In general, salaries, wages and other similar remuneration in respect of employment in the country in which an individual is tax resident shall normally be taxable only in that country. The exception to this is where an individual works in the other country, (either in Cyprus or the UK) in which case any remuneration may be taxed in that other country. For example, if an individual who is tax resident in Cyprus is working in Cyprus their salary is taxable in Cyprus. If the same individual works in the UK, then their salary (earnt in the UK) can be taxed in the UK.
The main exception to this rule is for Government employees (of any kind) including HMF, Civil Servants, NHS, Teachers etc, whether directly or indirectly employed, who will be taxed in the Country of the Government that is funding their remuneration. For example members of UK HMF will be subject to UK income taxes on their salary.
Pensions
This must be considered in three parts.
1. For all NON-UK government funded pension schemes paid to individual’s tax resident in Cyprus; Cyprus taxation will apply. Currently, this is either normal rates of Cyprus income tax or the special rate of 5% for foreign sourced pensions.
2. UK State funded Pension schemes (OAP pension) paid to individual’s tax resident in Cyprus; Cyprus taxation will apply. Currently, this is either normal rates of Cyprus income tax or the special rate of 5% for foreign sourced pensions.
3. For ALL UK government funded pensions, paid to individual’s tax resident in Cyprus; UK Income tax will apply at source. This includes, for example, retired members of HMF, NHS Civil Servants, local authority employees, teachers, police and other emergency services as well as government agency employees.
The exception to paragraph 3 above is that if an individual, who is in receipt of a UK government funded pension, is
(a) tax resident in Cyprus and
(b) a National (Citizen) of Cyprus,
the UK government-funded pension can be taxed in Cyprus.
Income from immovable property (Rental income)
Income such as rental income from any property can be taxed in the country where the property is situated. This means that if an individual is tax resident in Cyprus and receives rental income from a UK property, the rental income can be taxed in the UK as “income”. In addition, such income must be declared in Cyprus and is subject to Income tax (albeit after allowing for tax already paid) and Defence tax, which is currently 3%.
Capital Gains from immovable property (profits upon sale of an immovable property)
Gains made by a tax resident of Cyprus, from the sale of UK immovable property, can, subject to the overriding current provisions of UK Capital Gains Tax regulations, be taxed in the UK.
Interest from deposits
Interest paid on UK deposit bearing bank, building society and National Savings, to a Cyprus tax resident shall be subject to tax in Cyprus.
Currently, the tax payable is the special contribution for defence, taxed at a rate of 30%.
Non-Cypriot domiciled individuals, who have been tax resident in Cyprus for less than 17 out of the last 20 years, are currently exempted from the payment of the special contribution for defence tax.
Source HM Government
22 March 2018
What is my income tax rate 2017/18?
Earnings (if you live in England, Wales or Northern Ireland) | 2017/18 rate |
Between PA and PA+£33,500 (basic rate) For most, £11,500 to £45,000 | 20% |
Between PA+£33,500 and £150,000 (higher rate) For most, £45,000 to £150,000 | 40% |
Over £150,000 (additional rate) | 45% |
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