Comparing Tax in Cyprus & Portugal for Expats
As an expat, understanding the tax systems of your potential destination countries is crucial for making an informed decision about where to settle. Two popular destinations for expats in Europe are Cyprus and Portugal, both of which offer attractive tax systems for foreign residents. In this article, we will compare the tax structures in these two countries to help expats determine which might be the better choice for their individual needs.
Tax Residency
Cyprus: To become a tax resident in Cyprus, an individual must usually spend more than 183 days in the country during a calendar year, although there is also a 60 day option (read more). Tax residents are subject to taxation on their worldwide income.
Portugal: Portugal has a similar tax residency rule, requiring individuals to spend at least 183 days within the country during a calendar year. However, Portugal also offers the Non-Habitual Residency (NHR) program, which allows qualifying expats to enjoy significant tax benefits for up to ten years.
Personal Income Tax
Cyprus: Personal income tax in Cyprus is progressive, with rates ranging from 0% to 35%. Taxable income below €19,500 is exempt, while income above this threshold is taxed at progressively higher rates. There is also a flat rate 5% tax for foreign pensions (read more)
Portugal: Portugal's personal income tax rates are also progressive, ranging from 14.5% to 48%. Additionally, there is a solidarity surcharge of up to 5% for income above €80,000. The NHR program can exempt certain types of foreign income from taxation for qualifying expats, including pensions, dividends, and royalties.
Social Security Contributions
Cyprus: Employees and employers in Cyprus must contribute to the Social Insurance Fund. The contribution rate is 8.3% of an employee's gross salary, with the employer and employee each responsible for half.
Portugal: In Portugal, social security contributions are generally 34.75% of an employee's gross salary, with the employer contributing 23.75% and the employee contributing 11%. Self-employed individuals contribute at a rate of 21.4%.
Corporate Tax
Cyprus: The corporate tax rate in Cyprus is a flat 12.5%. Additionally, Cyprus has an extensive network of double tax treaties, which can minimize the tax burden on international transactions.
Portugal: Portugal's corporate tax rate is 21%, with an additional municipal surcharge of up to 1.5% for companies with taxable income above €150,000. Portugal also has numerous double tax treaties in place.
Capital Gains Tax
Cyprus: Capital gains tax in Cyprus is levied at a rate of 20% but applies only to the sale of immovable property situated in Cyprus or shares in companies owning such property. Gains from the sale of shares in other companies and other securities are exempt.
Portugal: In Portugal, capital gains are generally taxed as personal income, with rates up to 48%. However, under the NHR program, expats can benefit from a potential exemption on capital gains derived from the sale of securities.
Wealth Tax
Cyprus does not impose any wealth tax on individuals. However, there is a special defence contribution of 17% on the interest income of resident individuals, which is not subject to social insurance contributions.
In Portugal, there is a wealth tax called ISF (Imposto sobre o Património). The tax rate on a person's net worth is between 0.4% and 1%. The tax is payable if the taxable net worth exceeds €600,000.
Conclusion
Both Cyprus and Portugal offer attractive tax systems for expats, with each having its unique advantages. Cyprus boasts a lower corporate tax rate and more lenient capital gains tax, while Portugal's NHR program can provide significant tax benefits for qualifying individuals. Ultimately, the choice between Cyprus and Portugal will depend on each expat's specific financial situation and personal preferences. It is always advisable to consult with a tax professional when making such important decisions.
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Who needs to complete a tax return in Cyprus?
Your should submit a tax return if you have:
Taxable income in Cyprus in excess of €19,500 in 2022
Cyprus tax residence with overseas worldwide taxable income
Sole trader in cyprus
Cyprus company
Any flat rate tax liability in cyprus where tax is to be assessed and paid ( including property rental, dividend, interest, royalties)
Any with real worldwide income liable to cyprus health tax
A property in cyprus being sold or transferred
Any estate of a deceased or trust with taxable income or disposals
When does the tax return need submitting?
Cyprus tax returns are due by 31/7/2023 for:
Employees
Pensioners
Self employed
Other individuals
These can be provisional with final revisions and updates due by 31/12/2023.
ProACT recommend submit early and update as required.
Cyprus companies and sole traders with turnover in excess of €70,000 require full audit of annual returns with a later final due date 15 months after year end.
How to pay balance of tax due ?
When your tax return is submitted you will receive a code allowing the tax to be paid.
You could pay tax for the current year (2023) during the year. Ask us how.
Assessments and Rebates
Assessments & rebates come slowly in Cyprus and could take up to 5 years.
Better to be correctly tax registered and control the tax payments in the first place.
Expat Tax Registration
Expats need to fully tax register which is a number of levels.
—> Read more about tax registration in Cyprus
ProACT can assist and advice expats Living and Working Abroad
Tax Advice and assistance to complete registration and returns
Tax Reports and advice on tax residence and liability
Tax Return and preparations for family and business
Tax registrations as required.
For help and guidance you contact us, book a free review or purchase our tax service.