Quick Answer
The US-Cyprus Double Tax Treaty (signed 1984, in force since 1985) reduces withholding tax rates on dividends (15%), interest (10%), and royalties (0%) between both countries. However, due to the savings clause (Article 1(3)), US citizens cannot use most treaty benefits to reduce their US tax liability. Americans living in Cyprus still file US taxes on worldwide income and use the Foreign Tax Credit (Form 1116) to avoid double taxation.
US-Cyprus Tax Treaty: Complete Guide for American Expats
The US-Cyprus Double Tax Treaty (in force since 1985) allocates taxing rights between both countries and sets reduced withholding rates on dividends, interest, and royalties. Essential reading for Americans considering a move to Cyprus.
Last updated:
US-Cyprus Double Tax Treaty at a glance
- 1984
- year the treaty was signed
- 65+
- Cyprus double tax treaties total
- 15%
- max withholding on dividends under treaty
- 0%
- withholding on royalties under treaty
Why the US-Cyprus Tax Treaty Matters
The United States is one of only two countries in the world that taxes its citizens and permanent residents (green card holders) on their worldwide income regardless of where they live. Moving to Cyprus does not exempt Americans from US tax obligations. This system - known as citizenship-based taxation - means that a US citizen living in Larnaca still files a US federal return and pays US rates on their global income.
The US-Cyprus Double Tax Treaty, signed in 1984 and in force since 1985, addresses this by allocating taxing rights between both countries and establishing reduced withholding rates at source. It prevents the same income from being taxed in full by both the US and Cyprus, primarily through two mechanisms: reduced withholding rates and foreign tax credits.
The Savings Clause
Article 1(3) of the treaty contains a "savings clause" that significantly limits treaty benefits for US citizens. The savings clause states that the US retains the right to tax its citizens as if the treaty had not come into force. In practice, this means that most treaty benefits - such as exemptions or reduced rates - cannot be used by a US citizen to reduce their US tax liability. The treaty primarily helps Cypriot tax residents (who are not US citizens) doing business with or receiving income from the US.
For the Cyprus-side tax benefits available to all residents - including Americans - see the Non-Dom status guide. Non-Dom reduces Cyprus tax on dividends to 2.65% GHS only, regardless of nationality.
Withholding Tax Rates Under the Treaty
Dividends
- 15% - general withholding rate on dividends paid from source country
- 5% - reduced rate if the corporate shareholder holds 10% or more of the paying company
Interest
- 10% withholding rate on interest income paid to a resident of the other country
Royalties
- 0% - royalties are fully exempt from withholding tax in the source country under the treaty
Business Profits
- Business profits are taxable only in the country of residency of the enterprise
- Exception: if the enterprise operates through a Permanent Establishment (PE) in the other country, profits attributable to the PE are taxable there
Capital Gains
- Generally taxable in the country of residence of the seller
- Exception: gains from immovable property (real estate) are taxable in the country where the property is located
Employment Income
- Taxable in the country where the work is physically performed
Non-Dom stacks on top
For Cyprus tax residents with Non-Dom status, the treaty withholding rates interact favourably with Cyprus domestic rates. Dividend income already subject to only 2.65% GHS in Cyprus - the treaty prevents additional Cyprus income tax from applying to foreign-source dividends on top of any US withholding already paid.
Who Actually Benefits from This Treaty?
Cypriot Residents with US Income
The best-case scenario for the treaty is a Cyprus tax resident who is not a US citizen. Under the default US rules, the US withholds 30% on dividends, interest, and royalties paid to foreign persons. The treaty reduces these rates to 15% on dividends (or 5% for qualifying corporate shareholders), 10% on interest, and 0% on royalties. Combined with Non-Dom status, a Cypriot resident receiving US royalties could face very little tax in either country.
US Citizens Living in Cyprus
Americans living in Cyprus have limited ability to use the treaty to reduce their US tax liability, due to the savings clause. US citizens still file Form 1040 and pay US rates on worldwide income. The main mechanism to avoid double taxation is the Foreign Tax Credit (Form 1116), which allows US citizens to credit Cyprus taxes paid against their US liability. In most cases, if Cyprus tax paid exceeds or equals the US tax owed on the same income, the net US additional liability is zero.
US Companies with Cypriot Subsidiaries
The treaty reduces withholding on dividend distributions made from a Cyprus subsidiary to a US parent company. The 5% rate applies if the US parent holds 10% or more of the Cypriot entity. This is relevant for multinational structures with a Cyprus holding or operating company.
Practical Steps for Americans Moving to Cyprus
You Still File US Taxes
Moving to Cyprus does not end your US tax filing obligation. US citizens and green card holders must file Form 1040 every year regardless of where they live. The Foreign Earned Income Exclusion (FEIE, Form 2555) may exclude some employment income, but does not apply to passive income such as dividends or interest.
Foreign Tax Credit
The primary tool for avoiding double taxation is the Foreign Tax Credit (Form 1116). Cyprus taxes paid on income that is also taxed by the US can be credited against the US tax liability on the same income. If Cyprus tax paid equals or exceeds the US tax on that income, no additional US tax is owed on it. Unused credits can carry forward one year or back ten years.
FBAR and FATCA Requirements
Americans with foreign financial accounts must file an FBAR (FinCEN 114) if the aggregate value of all foreign accounts exceeds $10,000 at any point in the year. Additionally, Form 8938 under FATCA applies if foreign financial assets exceed $200,000 at year end (or $300,000 at any point) for single filers living abroad. Cyprus is a FATCA IGA country, meaning Cypriot financial institutions report US person account information to the Cyprus Tax Department, which shares it with the IRS.
Tax Advisors You Need
Americans moving to Cyprus typically need two professionals: a Cyprus tax advisor for local compliance (registration for TIC - Tax Identification Code - Non-Dom status, annual returns) and a US-qualified CPA experienced with expat taxation for Form 1040, FBAR, and FATCA. See the services page for introductions to advisors specialised in Cyprus expat taxation.
Frequently Asked Questions
Does the US-Cyprus tax treaty eliminate double taxation for Americans?
No, not fully. The savings clause (Article 1(3)) preserves the right of the US to tax its citizens as if the treaty had not come into force. This means most treaty benefits cannot be used by a US citizen to reduce their US tax liability. Double taxation is reduced - not eliminated - primarily through the Foreign Tax Credit (Form 1116), which credits Cyprus taxes paid against the US tax liability on the same income.
What is the withholding rate on dividends under the US-Cyprus treaty?
15% is the general withholding rate. A reduced rate of 5% applies if the corporate shareholder receiving the dividends holds 10% or more of the voting shares of the paying company. Without the treaty, the US default withholding rate on dividends paid to foreign persons is 30%.
Are Cyprus Non-Dom Americans exempt from US tax?
No. Non-Dom is a Cyprus domestic tax status that reduces Cyprus tax on dividends, interest, and rental income. It has no effect on US tax obligations. The US taxes its citizens on worldwide income regardless of their tax status in any other country. A US citizen with Non-Dom status in Cyprus still files US taxes on all income, including dividends that are taxed at only 2.65% GHS in Cyprus.
Does Cyprus have FATCA reporting?
Yes. Cyprus is a FATCA IGA (Intergovernmental Agreement) country. Cypriot financial institutions are required to identify US person account holders and report their account information to the Cyprus Tax Department, which in turn shares it with the IRS. This means holding a bank or brokerage account in Cyprus as a US person is reported to the IRS automatically.
Can I use the treaty to avoid paying both US and Cyprus taxes?
Not if you are a US citizen. The savings clause preserves full US taxing rights over citizens regardless of treaty provisions. Non-US citizens who are Cyprus tax residents benefit more directly from the treaty - for example, a German or Spanish national living in Cyprus and receiving US-source royalties would owe 0% withholding under the treaty instead of the default 30%. For US citizens, the Foreign Tax Credit is the correct tool to avoid double taxation, not treaty exemptions.
Get Expert Advice on US-Cyprus Taxation
US expat taxation is complex. Get introduced to advisors experienced with both Cyprus Non-Dom and US expat compliance.
Stay Updated on Cyprus Tax Changes
Get the latest updates on tax regulations, Non-Dom benefits, and relocation tips.
No spam. Unsubscribe anytime. Please use a real email, your free content will be delivered by email.