Double Taxation Between Cyprus and the U.S.: What Applies to Rental Income, Dividends, or Employment in Cyprus?
Introduction
Many Cypriots living permanently in the United States continue to maintain income sources in Cyprus — such as real estate rentals, dividends from companies, or occasional employment.
A common concern is:
Will this income be taxed both in Cyprus and in the United States?
The answer lies in the Cyprus–U.S. Double Taxation Agreement, which provides mechanisms to avoid duplicate taxation through credits, exemptions, or rate reductions.
⚖️ Legal Framework
The relevant legislation includes:
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Cyprus–U.S. Double Taxation Agreement (1985)
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Cyprus Income Tax Law (Law 118(I)/2002)
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U.S. Internal Revenue Code (IRC)
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FATCA Agreement (for cross-border tax reporting)
Types of Income Affected
Rental Income from Cyprus Property
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Taxed in Cyprus under personal income tax and possibly Special Defense Contribution (SDC)
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Must also be declared in the U.S. under foreign income rules
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U.S. taxpayers may claim foreign tax credit for tax already paid in Cyprus
Dividends from Cyprus Companies
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Subject to withholding tax in Cyprus
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The U.S. may also tax the dividend, but allows a foreign tax credit
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If Cyprus withheld more than the treaty rate, you can apply for a partial refund
Employment Income from Cyprus
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If working physically in Cyprus → taxed at source in Cyprus
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If working remotely for a Cyprus company, residency status determines taxation
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Must declare it in both countries and apply tax treaty principles
How to Avoid Double Taxation
The Cyprus–U.S. treaty allows:
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Foreign Tax Credit: Taxes paid in Cyprus reduce U.S. tax liability
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Exemption or reduced rates on interest, royalties, and dividends
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Tie-breaker rules to determine residency and tax authority jurisdiction
What You Must Do as a Taxpayer
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Declare your foreign income in your U.S. tax return (Form 1040 + Schedules E/B)
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Obtain tax certificates or proof of withholding from Cyprus
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File Form 1116 for the foreign tax credit
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If you haven’t filed in Cyprus, consult a local tax advisor or lawyer
❗ When Problems Arise
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If you fail to report Cyprus income in either country
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If the wrong tax rates were applied
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If residency or source of income is unclear
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If withholding tax was not paid or misclassified
How E. CHATZIDIMITRIOU LLC Can Help
Our firm offers full support to U.S.-based Cypriots by:
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Reviewing your Cyprus-sourced income
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Filing or amending your Cyprus tax returns
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Issuing certificates of tax paid or residency
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Applying treaty benefits under the Cyprus–U.S. agreement
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Liaising with Cyprus and U.S. tax authorities, if needed
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Handling your case remotely, under Power of Attorney
Contact Us
Website: www.hatzidimitriouvirtuallaw.com
Email: info@hatzidimitriouvirtuallaw.com
U.S. Phone: +13474034789
Avoid paying twice – let us help you file and declare income in both Cyprus and the U.S. legally and accurately.