Taxes may be on the rise in Cyprus, causing more financial woes for expats living in the beleaguered eurozone.

Cyprus, a popular destination for British expats, is currently negotiating the terms of an EU bailout package to help finance its debts, following in the footsteps of Greece, Portugal and Ireland.

If the bailout is granted, the Cypriot government is likely to sign up to harsh austerity measures as part of the deal. These are expected to come in the form of tax rises rather than spending cuts.

There is plenty of scope to raise taxes, as one of the island's key attractions for British expats is its relatively low tax regime.

A spokesman for international tax specialist Blevins Franks said: “We cannot rule out the possibility that it will look to earn more revenue from income taxes, whether from employment or income from capital. Tax rates here are relatively low.”

Income tax in Cyprus is charged at 35 per cent at the top rate, compared with 46.5 per cent in Portugal, 52 per cent in Spain and a new rate of 45 per cent being introduced in France. There is a relatively high tax-free threshold of €19,500 (£15,660), which can be earned before tax is payable.
Cyprus also charges no wealth tax, unlike Spain and France, while operating a favourable tax regime for foreign pension income.
Expats feel the government is under pressure to increase its tax grab to reduce its fiscal debts as quickly as possible.
One British expat, who wished to remain anonymous, said: “One possible change could see all those working in Cyprus forced to submit tax returns even if they fall below the taxable threshold. Basically, the government is looking at lots of different ways it could raise its revenues without too much resistance from people.”
Medical fees are also being introduced in state hospitals, value added tax (VAT) will rise to 18 per cent while taxes will be increased on tobacco and alcohol. The Cypriot government is additionally contemplating a property tax on all homes worth more than €500,000 (£401,580).
Cyprus's financial sector has been hit badly by its heavy exposure to troubled Greek banks.