Undeniably, Cyprus is deemed to be a tax heaven for both individuals and legal entities. Its geographic location together with its attractive tax regime and business marketplace, render Cyprus the ultimate destination for investors and businesses who are looking for a dynamic and transparent tax system to meet their current revenue needs.
Becoming a tax resident in Cyprus is an attractive option for High Net worth Individuals because of the benefits being numerous, quite appealing, and not easy to disregard.
The Cyprus tax residency status can be also very appealing to individuals that are frequently travelling around the world and are not actual residents with a permanent residency status in any country, known as Fiscal Nomads and Perpetual Travelers.
Chambersfield Economides Kranos has an extensive experience on tax law issues. Our Law Firm can provide you, inter alia, with professional legal assistance and support with every aspect and/or issue concerning the complex area of tax and practice.
Personal Income Tax
Pursuant to Cyprus Tax Regime, individuals who are Cyprus tax residents, are taxed on worldwide income, whereas individuals who are not considered to be Cyprus tax residents, are taxed on income accrued, or, derived solely from Cyprus.
Tax Residency – 183 Days Rule
As per the relevant regulatory and legislative framework, an individual can be deemed as a tax resident of the Republic of Cyprus, in case he/ she has physical presence exceeding 183 days in the current calendar tax year. The CY tax year period is identical to a calendar year, covering the 12-months' period that commences on 1st of January and ends on 31st of December, of each year.
Tax Residency – 60 Days Rule
According to the latest amendment of the Law, an individual who does not retain physical presence in Cyprus exceeding 183 days, may still be deemed as tax-resident, provided that the following conditions are met:
- The individual does not stay, in aggregate, more than 183 days in any other country and is not a tax resident of any other jurisdiction
- The individual stays at least 60 days, during the current calendar tax year, in the Republic of Cyprus;
- The individual maintains a permanent home in the Republic of Cyprus (either by owning or renting);
- The individual operates a business and/or is employed and/or holds an office, in the Republic Cyprus, at any time during the tax year. It is important to note that in case the employment/business, or, holding of an office is terminated during the ongoing calendar tax year, then the individual would cease to be considered a tax resident of the Republic of Cyprus.
Calculation of Residency days in Cyprus for '183-day rule' or the '60-day rule'
- Day of Departure from Cyprus considers as non-residence day
- Day of Arrival to Cyprus considers as a residency day
- Same day arrival and departure to/from Cyprus considers as a residency day
- Same day departure and arrival from/to Cyprus considers as a non-residence day
Domicile - Non- Domicile Tax Residents
A CY tax resident individual may be considered either as domiciled or non-domiciled (non-dom) in Cyprus. More precisely, pursuant to the provisions of Wills & Successions Law, domicile is defined as follows:
- Domicile of Origin
- Domicile of Choice
A CY tax resident individual will be treated as non-domiciled in Cyprus, provided that either one of the following two case scenarios applies:
- An individual who has obtained and maintained a domicile of choice outside Cyprus, provided that this person was not a Cyprus tax resident for any period of at least 20 consecutive years preceding the tax year in question; or
- An individual who has not been a tax resident of Cyprus as per the Income Tax Law for a period of 20 consecutive years prior to the introduction of the law (i.e. prior to 16 July 2015).
Cyprus Tax Regime offers a plethora of advantages to individuals who are tax residents in the Republic of Cyprus, with relatively low scale income tax rates compare to other EU jurisdictions.
Income Tax Rates
The current income tax rates for Cyprus tax resident individuals are as follows:
|Annual Income (€)||Tax Rates (%)|
|€0 – €19.500||0%|
|€19.501 – €28.000||20%|
|€28.001 – €36.300||25%|
|€36.301 – €60.000||30%|
|In excess of €60.000||35%|
Income Tax Benefits
The following income is exempted from income tax, as follows:
|Dividends (special requirements apply)||Complete Exemption|
|Interests (special requirements apply)||Complete Exemption|
|Rental Income||Complete Exemption|
|Remuneration from any employment exercised in the Republic of Cyprus by an individual who used to reside outside the Republic of Cyprus, before the commencement of the employment||Exemption at the rate of 20% of the remuneration, or, €8.550 (whichever is lower)|
|Remuneration from any employment exercised in the Republic of Cyprus by an individual who used to reside outside the Republic of Cyprus prior to the commencement of the employment, provided that the annual remuneration of the employee exceeds €100.000||Exemption at the rate of 50% of the remuneration|
|Remuneration from the rendering of salaried services outside the Republic 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||Complete Exemption|
|Foreign exchange gains, except the ones arising from trading in foreign currencies and related derivatives (specific requirements apply)||Complete Exemption|
|Gains arising from the disposal of securities||Complete Exemption|
|Gains arising from a loan restructuring||Up to the whole amount|
|Profits of a permanent establishment maintained outside the Republic of Cyprus||Complete Exemption|
|Lump sum (special requirements apply)||Complete Exemption|
Special Defense Tax
According to Special Contribution for the Defense of the Republic of Cyprus Law of 2002, tax is imposed, inter alia, on income derived from interest, rents and dividends, subject to certain exemptions.
Special Defense Tax Benefits for Tax Resident Individuals Domiciled in Cyprus
Tax residents domiciled in Cyprus are subject to special defense tax at the rate of 17% on dividends income and 30% on interest income, regardless of the income source. Furthermore, rental income is also subject to special defense tax at the rate of 3% on 75% on the gross amount.
Special Defense Tax Benefits for Tax Resident Individuals Non – Domiciled in Cyprus
Pursuant to the recent 'non-dom' rules, CY tax resident individuals who are considered to be non-domiciled in Cyprus, are exempted from payment of the special defense tax on dividends, interest and rental income.
The Cyprus non-domiciled tax status provides fundamental tax advantages, whereas non-domiciliaries benefit from zero rate of tax, on the following sources of income: dividends, interests, rent, capital gains (other than the ones imposed on immovable property in Cyprus), capital sums received from a pension, provident, medical schemes, or, insurance fund.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.