Tax Advantages of Living and Investing in Cyprus: A 2025 Guide

Why Cyprus Continues to Attract Global Residents and Investors

Cyprus has emerged as one of Europe’s most attractive destinations for individuals and businesses seeking a tax-efficient base. Offering one of the lowest corporate tax rates in the EU at just 12.5%, along with progressive personal income tax where the first €19,500 earned annually is completely tax-free, the island strikes a balance between opportunity and simplicity. Foreign investors also benefit from full exemptions on dividend and interest income, while Cyprus imposes no inheritance, wealth, or gift tax—an increasingly rare combination in the European landscape. With over 60 double taxation agreements in place and full alignment with EU legal standards and investor protections, Cyprus continues to appeal to digital nomads, entrepreneurs, retirees, and international investors looking to optimise both lifestyle and financial strategy in 2025.

Personal Income Tax: Favourable Rates and Expats’ Exemptions

Cyprus offers a progressive income tax system designed to support both local and foreign residents. Individuals are taxed only on income earned within Cyprus unless they become tax residents—yet even then, the structure remains notably generous.

• The first €19,500 of annual income is tax-free, with rates progressively increasing up to 35% for higher income brackets. 
• Foreign nationals can benefit from non-domicile (non-dom) status, which exempts them from paying tax on dividends, interest, and even rental income, regardless of the country of origin. 
• Those earning over €100,000 annually may also qualify for a 50% income tax exemption, valid for up to 17 years after relocating. 
• In addition, EU/EEA citizens can relocate to Cyprus without a visa, streamlining the residency process and allowing them to take full advantage of Cyprus’s tax benefits, including the non-dom regime and pension-friendly policies, free from inheritance or gift tax obligations.

Example: A software engineer relocating from Germany and earning €110,000 annually could pay tax on just half of their income, while also enjoying zero taxation on dividends or overseas rental income. With no inheritance or gift tax, Cyprus becomes especially appealing for those planning long-term family wealth transfers or retirement.

Non-EU Citizens: Residency and Full Access to Cyprus Tax Benefits

While EU/EEA nationals benefit from freedom of movement, non-EU citizens can also tap into Cyprus’s full range of tax incentives through straightforward residency options. Most commonly, this is achieved by purchasing real estate, either for personal use or as part of the €300,000+ investment route for permanent residency.

Once tax residency is established, either through the 183-day rule or the more flexible 60-day rule - non-EU nationals are treated much like EU residents, with access to the same incentives and protections.

Key advantages include: 

• 50% income tax exemption for 17 years for newcomers earning €55,000 or more annually from Cyprus-based employment 
• Legacy transitional relief of up to €8,550 per year for lower-income employees, which is currently under review for potential expansion 
• Non-dom tax status granting zero tax on dividends, interest, and capital gains for 17 years 
• No inheritance, gift, or wealth tax, plus access to Cyprus’s DTA network
• Schengen entry is on the horizon - soon, Cyprus residency could mean visa-free travel across 27 EU countries, adding even more value for non-EU investors.

Example: An investor from the UAE or Russia who purchases an apartment in Limassol can become a Cyprus tax resident via the 60-day rule and enjoy complete exemption on foreign dividend and interest income. If they take up employment in Cyprus with a salary above €55,000, they may also qualify for a 50% income tax exemption for 17 years, making Cyprus an attractive base for both lifestyle and long-term wealth planning.

Retirees: Tax-Friendly Living with Long-Term Stability

Cyprus stands out as one of the most pension-friendly destinations in Europe, offering retirees a tax regime that is both flexible and advantageous. Whether you're from the EU or a third country, establishing tax residency in Cyprus unlocks a range of financial benefits designed for long-term peace of mind.

Cyprus tax residents are required to report worldwide pension income, but they enjoy the freedom to choose each tax year how this income is taxed:

• Either under the standard income tax bands (starting at 0% for the first €19,500), 
• Or via a flat 5% rate on any pension income above €3,420—whichever option is more tax-efficient.

Most retirees choose the 5% flat rate, which often results in a significantly reduced tax burden. Additionally, pension lump-sums, such as gratuities or one-off withdrawals, are completely tax-free in Cyprus, an appealing advantage for those transitioning into retirement. 

Other key benefits include: 

• No inheritance, gift, or wealth taxes, ideal for estate and succession planning 
• Full access to non-dom exemptions, including 0% tax on dividends and interest income 
• Access to public healthcare and high living standards in a safe, sunny environment 

Example: A British retiree receiving €25,000 in annual pension income could opt to be taxed only 5% on the amount exceeding €3,420—resulting in a tax bill of under €1,100. Combined with zero tax on investments and no inheritance tax, Cyprus offers retirees both lifestyle and financial security.

Digital Nomads and Remote Workers: EU Lifestyle with Global Tax Benefits

Cyprus is rapidly positioning itself as a prime destination for digital nomads and remote professionals seeking a flexible European base with strong tax advantages. With the introduction of the Digital Nomad Visa, third-country nationals (non-EU) can legally live and work from Cyprus while being employed by companies based abroad or running their own international businesses.

The visa is initially valid for one year and can be renewed for up to two additional years, with residency rights extended to close family members. But the true draw lies in the tax benefits available to those who become Cyprus tax residents—either by spending more than 183 days on the island or through the 60-day rule (with certain criteria met).

Key tax advantages include: 

• 0% tax on dividend income and capital gains, except for gains from Cyprus real estate 50% income tax exemption on foreign-earned income exceeding €55,000, valid for up to 17 years 
• Full access to the non-dom regime, including zero tax on interest income 
• Eligibility for double tax treaty protections to avoid being taxed twice on the same income

Example: A remote UX designer earning €70,000 annually from clients abroad becomes a Cyprus tax resident. They qualify for the 50% income tax exemption on the amount over €55,000, meaning only €7,500 of their income is subject to regular tax rates.

Combined with no tax on dividends or investment gains, this creates a highly favourable setup for location-independent professionals.

With a stable EU environment, a sunny climate, and world-class internet infrastructure, Cyprus continues to attract digital nomads looking to reduce their tax burden without sacrificing quality of life.

Real Estate Investment: Tax Incentives for Homeowners and Investors

Cyprus offers a range of tax benefits that make property ownership appealing—whether you're buying a primary residence or investing in rental property. With no annual property taxes, no inheritance tax, and favourable capital gains rules, the island is particularly attractive for both lifestyle buyers and investors looking for long-term value.

Residential Property: Reduced VAT and Capital Gains Relief Purchasing a primary residence in Cyprus comes with notable tax perks, especially for new builds:

A reduced 5% VAT (instead of 19%) applies to the first €350,000 of the purchase price for new homes, provided: 

• The property is under 190m², 
• The total value does not exceed €475,000, 
• It’s the buyer’s first use of the scheme, and 
• The home is used as the primary residence for at least 10 years. 

These rules apply to properties with planning permits submitted after November 2024. For older permits, the previous rule still applies—offering 5% VAT on the first 200m² of a main residence.

When it comes to selling, capital gains tax is capped at 20%, but there is a generous €85,430 tax-free allowance for sales of primary residences. Combined with no annual property tax and no inheritance tax, Cyprus offers a highly tax-efficient way to own and pass down property.

Example: A non-EU family purchasing a new villa in Limassol for €450,000 as their main home can qualify for the reduced 5% VAT and may later sell the property with significant capital gains protected by the €85,430 tax exemption—transferring the home tax-free to their children.

Read here more about the Corporate Tax

Investment Property: Efficient Taxation and Deductions

For those buying rental or commercial real estate, Cyprus offers a practical and investor-friendly tax structure.

Rental income is taxed under normal income rules, but investors can deduct most related expenses, such as: 

• Mortgage interest
• Property management fees 
• Maintenance and repairs 
• This helps reduce taxable rental income and boost net yield. 

On sale, a 20% capital gains tax is levied on profits from the sale of Cyprus-based property, but importantly.

No capital gains tax applies on: 

• The sale of foreign real estate 
• Shares in companies owning property abroad
• Assets located outside Cyprus

Cyprus’s network of double taxation treaties also ensures that rental income is generally taxed only once, depending on treaty terms—either in Cyprus or the investor’s country of residence.

Example: An investor from Ukraine purchases an apartment in Limassol for short-term rentals. They deduct property management and maintenance costs from rental income and only pay capital gains tax when they sell, limited to profits made on the Cyprus-based asset. Gains on foreign real estate remain untaxed in Cyprus.

A Tax-Efficient Gateway to Life and Business in Europe

Whether you’re a retiree seeking financial stability, a remote professional optimizing global income, or an investor looking to minimise your tax exposure, Cyprus offers one of the most favourable tax environments in Europe. With a flat 12.5% corporate tax, 0% tax on dividends, interest, and capital gains for non-doms, and pension-friendly income rules, the island’s regime is built to support both individual and corporate prosperity.

From reduced VAT on residential property to generous capital gains allowances, no inheritance tax, and double taxation agreements with over 60 countries, Cyprus creates an efficient framework for long-term financial planning. EU and non-EU nationals alike can benefit from straightforward residency pathways, ensuring broad access to these incentives.

Combined with a high quality of life, political stability, and access to the EU market, Cyprus is more than just a Mediterranean escape—it’s a strategic choice for those who want to live better, invest smarter, and grow globally.

At SquareOne, we help individuals and businesses navigate Cyprus’s tax and residency frameworks with clarity and confidence. Contact us today to explore how you can take full advantage of the island’s tax benefits and investment opportunities.