There is no income tax treaty currently in force between the United States and Cyprus. The two countries signed an income tax convention on March 19, 1984, and it entered into force on December 31, 1985, but the United States later terminated it and no replacement has been negotiated.1Internal Revenue Service. Cyprus – Tax Treaty Documents Income flowing between the two countries is taxed under each country’s domestic rules, with no treaty override on withholding, sourcing, or dispute resolution.
The IRS still hosts the original 1984 documents, but only for historical reference. If you are relying on a summary that describes reduced withholding rates or tie-breaker residency rules under a US–Cyprus treaty, that summary is out of date.
What the Missing Treaty Actually Costs You
Treaties do three practical things: they cut statutory withholding rates on cross-border payments, they allocate taxing rights over business profits and specific income types, and they give taxpayers a bilateral route (competent authority) to resolve double-taxation disputes. Without a treaty, none of that is available between the US and Cyprus.
The most visible consequence is on outbound US payments. The full 30% US statutory withholding tax applies to dividends, interest, and royalties paid from a US payer to a Cypriot resident.2Internal Revenue Service. NRA Withholding A Cypriot investor receiving $100,000 in US dividends sees $30,000 withheld at source. Under a typical treaty, that rate would fall to somewhere between 5% and 15% on dividends, and often to zero on interest.
US taxpayers earning income in Cyprus are in a mirror-image position. They cannot invoke treaty relief, so they rely entirely on unilateral US domestic mechanisms to avoid paying tax twice on the same dollar.
Foreign Tax Credit: The Main Relief for US Taxpayers
The Foreign Tax Credit is the principal tool for offsetting Cypriot income tax against your US bill. It gives a dollar-for-dollar reduction in US tax for qualifying foreign income taxes you have already paid. That is almost always better than deducting foreign taxes, because a deduction only reduces taxable income while the credit reduces tax owed.3Internal Revenue Service. Foreign Tax Credit
Individuals and trusts claim the credit on Form 1116. Corporations use Form 1118.3Internal Revenue Service. Foreign Tax Credit The credit is capped: foreign taxes can only offset the US tax attributable to your foreign-source income, not tax on your US-source income. The credit is calculated separately for different income categories (passive, general, foreign branch, GILTI), so you cannot blend a high foreign rate on one type of income with a low rate on another. Unused credits carry forward for ten years.
The Simplified Election
If all your foreign-source income is passive, it is all reported on a payee statement like a 1099, and your total creditable foreign taxes come to $300 or less ($600 for joint filers), you can skip Form 1116 and take the credit directly. The trade-off is that you give up any carryforward, so this only makes sense when the numbers are small.
Foreign Earned Income Exclusion for Expats in Cyprus
US citizens and resident aliens living and working in Cyprus have a second tool. The Foreign Earned Income Exclusion lets you exclude up to $132,900 of foreign earned income from US taxable income for 2026.4Internal Revenue Service. Figuring the Foreign Earned Income Exclusion You need a tax home in Cyprus and must meet either the bona fide residence test (genuine residency in Cyprus for a full tax year) or the physical presence test (330 full days in a foreign country during any 12-month period).
The exclusion only covers earned income: wages and self-employment income. It does not reach dividends, interest, capital gains, or rental income. You can use it alongside the Foreign Tax Credit, but you cannot use both on the same dollar. A common pattern for US expats in Cyprus is to exclude salary under the FEIE and credit Cypriot taxes on investment income.
Passive Income and the Special Defence Contribution
Cyprus is generous on outbound payments to the US. It generally imposes no withholding tax on dividends or interest paid to non-residents. Royalties are the exception: Cyprus withholds on royalty payments when the underlying intellectual property is used inside Cyprus, and exempts royalties for rights used outside Cyprus. A US recipient of Cypriot-source dividends or interest sees no Cypriot withholding and owes only US tax.
US citizens who become tax-resident and domiciled in Cyprus pick up an extra Cypriot layer: the Special Defence Contribution. As of 2026, SDC runs at 5% on dividend income and 17% on interest income. Those SDC amounts are creditable against US tax through the Foreign Tax Credit. Individuals who qualify under Cyprus’s non-domiciled regime are exempt from SDC on dividends and interest, which is one reason the non-dom status draws internationally mobile taxpayers to Cyprus.
Business Profits Without a Treaty
With no treaty to allocate taxing rights, each country applies its own domestic rules on when a foreign business has enough presence to be taxable.
US Companies in Cyprus
A US company with a permanent establishment in Cyprus pays Cypriot corporate tax on the profits attributable to that establishment. Cyprus raised its corporate tax rate from 12.5% to 15% starting in the 2026 tax year.5EY. Cyprus Enacts Major Tax Reform Legislation The US then taxes the company’s worldwide income at the 21% US corporate rate, with a Foreign Tax Credit for the Cypriot tax already paid. Because 15% is below 21%, there is typically some residual US tax on that income.
Cypriot Companies in the US
A Cypriot company is taxable in the US only on income effectively connected with a US trade or business, at regular US corporate rates. On top of that sits a 30% branch profits tax on after-tax US earnings under IRC Section 884.6Office of the Law Revision Counsel. 26 US Code 884 – Branch Profits Tax Income tax treaties often reduce or eliminate that branch profits tax. Cyprus has no treaty, so the full 30% applies, and the combined US tax burden on a Cypriot company’s US operations is steep.
Capital Gains: Two Very Different Systems
The US taxes citizens and residents on worldwide capital gains. Short-term gains are taxed as ordinary income; long-term gains carry preferential rates of 0%, 15%, or 20%, plus a potential 3.8% net investment income tax.
Cyprus does not tax gains from selling securities such as shares, bonds, or options, regardless of the seller’s residency. A US person selling shares in a Cypriot company owes no Cypriot tax on the gain but still owes US tax on it.
Real estate is the main exception on the Cyprus side. Cyprus imposes a 20% capital gains tax on profits from selling immovable property located in Cyprus, and this reaches shares in companies whose value is primarily derived from Cypriot real estate. Starting in 2026, updated lifetime exemptions apply: €30,000 for general disposals, €150,000 for a primary residence (subject to conditions), and €50,000 for agricultural land sold by a farmer. A US person paying the 20% Cypriot tax can credit it against US capital gains tax through the FTC.
No Estate or Gift Tax Treaty Either
Cyprus does not appear on the IRS’s list of countries with US estate and gift tax treaties.7Internal Revenue Service. Estate and Gift Tax Treaties The 1984 convention was an income tax treaty, not an estate or gift agreement, and it has been terminated regardless.
This matters for Cypriot residents who own US assets. A non-citizen, non-resident of the US must file a US estate tax return if the fair market value of their US-situated assets exceeds $60,000 at death.8Internal Revenue Service. Some Nonresidents With US Assets Must File Estate Tax Returns That $60,000 threshold is not indexed for inflation.9Internal Revenue Service. Estate Tax for Nonresidents Not Citizens of the United States Estate tax treaties typically give residents of the other country access to a prorated share of the much larger US exemption (over $13 million for 2026). Cypriot residents get no such prorated share and are stuck with the $60,000 floor. Anyone in that position with meaningful US holdings needs to plan around it.
No Social Security Totalization Agreement
The two countries also lack a Social Security totalization agreement.10Social Security Administration. US International Social Security Agreements Those agreements normally stop workers from paying into both systems on the same earnings and let workers combine credits from both countries to qualify for benefits.
Without one, a US citizen working in Cyprus can end up owing both US self-employment tax (or FICA through a US employer) and Cypriot social insurance contributions on the same wages. There is no credit mechanism between the two systems the way the Foreign Tax Credit works for income taxes. The extra cost bites hardest on the self-employed.
Reporting Requirements That Still Apply
The absence of a treaty does nothing to reduce US reporting obligations. If anything, the compliance load is where the real risk sits, because penalties for missed disclosures can exceed the underlying tax.
FBAR (FinCEN Report 114)
If the combined value of your foreign financial accounts crosses $10,000 at any point during the year, you must file a Report of Foreign Bank and Financial Accounts.11FinCEN. Report Foreign Bank and Financial Accounts This covers bank and brokerage accounts in Cyprus or anywhere else outside the US. The FBAR is filed electronically with FinCEN, not the IRS, and is due April 15 with an automatic extension to October 15.12Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) Willful failure to file can draw penalties up to $100,000 or 50% of the account balance per violation.
Form 8938 (FATCA)
Form 8938 is separate from the FBAR and is filed with your tax return. Thresholds vary by filing status and where you live. Taxpayers living in the US file if specified foreign financial assets exceed $50,000 at year-end ($75,000 at any point) for single filers, or $100,000 at year-end ($150,000 at any point) for joint filers. If you meet the foreign residence tests, the thresholds rise to $200,000 at year-end ($300,000 at any point) for single filers and $400,000 at year-end ($600,000 at any point) for joint filers.13Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets
Form 8938 and the FBAR overlap but are not identical. Some assets are reportable on one and not the other, and filing one does not excuse you from the other. Both apply whether or not the accounts produce taxable income.