Identify the pension and treaty
Obtain the pension provider’s annual statement, gross amount, payment dates, currency and foreign tax withheld. Identify whether it is a private employment pension, social-security pension, government-service pension or another payment. A lump sum requires its own classification.
Read the applicable double-tax treaty, including any special government-service rule and relevant nationality conditions. The location of the bank receiving the money does not determine the taxing right.
Compare both calculations
For an illustrative qualifying foreign pension of €20,000 in 2026, the special method gives (€20,000 − €5,000) × 5% = €750. If it is the person’s only taxable income and normal treatment leaves it within the €22,000 zero-rate band, ordinary income tax would be zero before considering any other relevant issue.
For €40,000 under the special method, the calculation is €35,000 × 5% = €1,750. Whether that is preferable depends on other income, deductions and treaty treatment. Do not simply compare 5% with the highest marginal band.
Review other charges and relief
The income-tax election does not automatically remove GHS obligations. Check the applicable coverage, contribution category and any valid exemption separately. Do not describe an income-tax calculation as the person’s total annual tax-and-contribution burden.
If the pension provider withholds foreign tax, determine whether relief should be claimed in the source country, Cyprus or both through coordinated procedures. Preserve official evidence. Foreign tax is not automatically refundable in Cyprus simply because it was deducted.
Document the annual choice
Prepare side-by-side calculations for the relevant tax year and retain the chosen treatment with the return. Recalculate when pension amounts, residence, other income or the treaty position change.
Use the double-tax relief checklist and prepare a residence-certificate file where the foreign authority or payer requires it.