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Cyprus is an attractive location for those looking to retire and take their pension with them. Foreign income pensions are taxed differently thanks agreements between Cyprus and other selected countries

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Cyprus tax and your pension

Most people will pick Cyprus as a location to retire because of the lifestyle and great weather. Cyprus also represents an attractive option, thanks to several pension tax benefits.

Foreign pension incomes receive special treatment in Cyprus, and most UK pensions are taxable solely in Cyprus. This is thanks to the UK-Cyprus double tax agreement.

The agreement means not only does your pension not get taxed twice, but pension lump sums also avoid Cyprus taxes. It is even possible to take cash lump sums from your UK pension without paying tax in either country. The exception is if you decide to take the entire pension as a lump sum. This will be taxed at 75% in the UK.

How are pensions taxed in Cyprus?

Retirees have two options for pensions that are taxed in Cyprus.

The first option lets you pay a flat rate of 5%. If you choose to have your pension taxed in this way, then you have an allowance of €3,420.

You can also add your pension to your annual income. This means that tax will be applied depending on what bracket of the income tax scale you fall into.

The income tax scale in Cyprus works as follows:

Income Income tax rate
Up to €19,500 0%
€19,501 – €28,000 20%
€28,001 – €36,300 25%
€36,301 – €60,000 30%
Over €60,000 35%

Are all pensions treated the same?

A revised version of the treaty which came into effect January 2019, means that UK Government service pensions are now taxed in the UK. A UK State Pension remains unchanged in Cyprus.

Transferring a UK pension to a QROPS can also have tax benefits for Cyprus residents. A QROPS is a popular choice for expat looking to transfer their pension fund if they decide to retire abroad. 

Because they are held outside the country they are treated differently. The tax rules depend on agreements between the country the QROPS is held in and your country of residence. For example, choosing a Maltese QROPS would allow you to withdraw pension income tax-free. This is because of the terms set out in the Malta-Cyprus double tax agreement.

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