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Cyprus - Residency Programs
There are several residency programs available in Cyprus, including:
- Cyprus Investment Programme (CIP): This program allows individuals to obtain residency in Cyprus by investing at least €2 million in real estate, businesses, or government bonds.
- Fast Track Business Activation Mechanism (FTBAM): This program is aimed at entrepreneurs who want to start a business in Cyprus. It allows them to obtain residency in Cyprus within a few weeks by submitting a business plan and investing in a local company.
- Employment: If you are offered a job in Cyprus, your employer can apply for a work permit on your behalf. Once the permit is granted, you can obtain residency in Cyprus.
- Family reunification: If you have family members who are already residents in Cyprus, you can apply for residency based on family reunification.
- Non-Domicile Taxation: Non-domiciled individuals are those who do not consider Cyprus to be their permanent home or their domicile, and they are subject to special tax rules
As for taxation, Cyprus has a favorable tax system for individuals and businesses. The tax rates for individuals are relatively low, and there are various incentives and exemptions available. For example, non-domiciled individuals who become tax residents of Cyprus can benefit from a special tax regime that exempts them from taxation on foreign income and dividends.
The Taxation System
Here are some key points about the taxation system in Cyprus:
- Personal Income Tax: Cyprus has a progressive tax system for personal income tax, ranging from 0% to 35%. The tax rates depend on the income level, with a tax-free threshold of €19,500. Non-domiciled individuals who become tax residents of Cyprus can benefit from a special tax regime that exempts them from taxation on foreign income and dividends.
- Corporate Income Tax: The corporate income tax rate in Cyprus is 12.5%, which is one of the lowest in the European Union. Cyprus also offers various tax incentives and exemptions to encourage foreign investment, such as a 80% exemption on income from intellectual property rights and a 50% exemption on profits from the disposal of securities.
- Value Added Tax (VAT): Cyprus has a standard VAT rate of 19%, with reduced rates of 5% and 9% for certain goods and services.
- Capital Gains Tax: Capital gains tax in Cyprus is imposed on the disposal of immovable property situated in Cyprus, as well as on the disposal of shares in companies that own immovable property in Cyprus. The tax rate is 20%.
- Double Tax Treaties: Cyprus has signed double tax treaties with over 60 countries, which aim to prevent double taxation and promote international trade and investment.
Tax Residency
Cyprus taxation scheme is based on the principle of residence and there are two main rules someone can choose to become a Cyprus Tax resident. An individual is considered a tax resident of Cyprus if he spends more than 183 days in the Republic in a tax year (1st of January to 31st of December). Consequently, if the individual is physically present in Cyprus for less than 183 days in a tax year, he will be considered to be a non-Cyprus tax resident in that tax year.
The 60 days rule
As of 1st January 2017, an individual can be considered as a tax resident of the Republic even if he spends less than 183 days provide, he meets all of the following conditions within the same tax year (1st of January to 31st of December):
- Does not stay in any other country, for one or more periods exceeding in aggregate 183 days;
- Is not a tax resident of any other country;
- Spends at least 60 days in Cyprus;
- Maintains a permanent home in Cyprus either owned or rented;
- Carries out business activities in Cyprus and/or is employed in Cyprus and/or holds be a director in a company that is tax resident in Cyprus;
If during the year the business, employment or holding of an office is terminated, then the individual shall not be treated as a Cyprus tax resident for that tax year.
Non-Domicile
Cyprus offers an attractive tax regime for non-domiciled individuals who become tax residents of the country. Non-domiciled individuals are those who do not consider Cyprus to be their permanent home or their domicile, and they are subject to special tax rules.
Under the non-domiciled tax regime in Cyprus, individuals can benefit from the following tax advantages:
- Exemption from taxation on foreign-sourced dividends: Non-domiciled individuals who become tax residents of Cyprus are exempt from taxation on dividends received from non-Cyprus resident companies, regardless of the percentage of the shareholding.
- Exemption from taxation on foreign-sourced interest: Non-domiciled individuals who become tax residents of Cyprus are exempt from taxation on interest received from non-Cyprus resident sources.
- Exemption from taxation on foreign-sourced capital gains: Non-domiciled individuals who become tax residents of Cyprus are exempt from taxation on capital gains from the disposal of shares, securities, and other financial instruments, regardless of where the assets are located.
- 50% exemption on employment income: Non-domiciled individuals who become tax residents of Cyprus can benefit from a 50% exemption on their employment income earned in Cyprus for a period of ten years, provided that their annual income exceeds €100,000.
It is important to note that non-domiciled individuals who become tax residents of Cyprus are still subject to taxation on their income and capital gains generated in Cyprus. Additionally, they are required to comply with the country’s tax laws and regulations.
Further tax advantages for individuals
Irrespective of domicile, foreigners who become Cypriot tax residents enjoy a range of other significant income tax advantages with the main ones being the following:
- Interest and dividends are liable to Special Defence Contribution instead of income tax, but non-Cyprus domiciles are exempt (except for minimal GeSY contributions).
- Profit from sale of shares and other qualifying titles is specifically exempt from Cyprus taxation, provided that the underlying assets do not include immovable property located in Cyprus.
- First €19,500 of taxable income is tax exempt. Any taxable personal income in excess of this amount is taxed at progressive rates ranging from 20% to 35% (for incomes over €60,000).
- 50% exemption for remuneration from employment exercised in Cyprus by persons who were resident outside Cyprus before commencement of their employment. The exemption applies for a period of 10 years commencing from the year of employment, if such income exceeds €100,000 per year.
- In case of Cypriot remuneration, which is less than €100,000, a 20% exemption is granted or €8,550 – whichever is lower. For employment commencing between 2012 and 2025, the exemption applies for a period of 5 years starting from the tax year following the year of employment.
- 100% exemption on remuneration from the rendering of salaried services outside Cyprus to a non-resident employer or a permanent establishment outside the Republic of a resident employer, for an aggregate period in the year of assessment of more than 90 days.
- Immovable property acquired up to 31st December 2016, profit from subsequent future disposal of such property will be exempt from the 20% Capital Gains Tax.
- Pension received in respect of past employment abroad is taxed in Cyprus at the flat rate of 5% for amounts exceeding €3,420 per year.
- No inheritance tax, no wealth tax, no gift taxation.
- In case of individuals who are beneficiaries to a Trust, such individuals would be exempt from tax in Cyprus, to the extent that the income at/from the Trust would be in the form of interest or dividends.
It is highly recommended to seek the advice of a professional tax advisor who can provide detailed information and guidance on the tax implications of becoming a non-domiciled tax resident of Cyprus.
