Cyprus is an island in the Eastern Mediterranean, situated at the crossroads of three continents and civilizations and has been a member of the European Union since 2004 and adopted the euro in 2008. Cyprus’ strategic location has established it as a prominent business hub for worldwide organisations. The island is known for its well-educated and adequate workforce, business infrastructure and availability of investment opportunities in several sectors such as shipping, energy and real estate.
Cyprus offers a number of tax incentives to high-net-worth individuals who want to relocate in the island and along with the benefits of a high-quality lifestyle, make the country significantly attractive for individuals and high caliber employees or individuals to work and settle with their families.
Cyprus Tax Residents
Where an individual is physically present in the Republic of Cyprus for more than 183 days during a calendar year, then can qualify as a tax resident in Cyprus.
Important Note: As of 1st of January 2017, even if an individual is physically present in the Republic of Cyprus less than or equal to 183 days in a calendar year, can still qualify as a tax resident under the well-known “60-Day” rule, provided that the individual satisfies the following conditions in the same tax year:
- Resides in no other country for an aggregate period of more than 183 days;
- Is not an existing tax resident of another country;
- Has a permanent rental or purchased house in Cyprus;
- Resides in Cyprus for an aggregate period of at least 60 days; and
- Owns a business in Cyprus or is employed by a Cyprus-resident organisation. Where the employment contract lapses or the person is terminated from the office in a tax year, they will cease to be considered a Cyprus tax resident for that year.
Income tax of foreign nationals and non-residents
Cypriot Tax Residents are subject to taxes on all chargeable income accrued or generated from all sources in Cyprus and abroad. Special Defense Contribution (“SDC”) is an example of local tax which applies to actual and income arising from passive sources (ex. interest, dividends, rental income), however it does not apply to non-residents. Another example, Cyprus-based real estate income generated from its sale is subject to capital gains tax.
Employment income deriving from sources in Cyprus for foreign nationals, regardless of whether they are tax resident, is subject to income tax. In addition, pensions from such employment are taxable as well, along with any rental income deriving from an immovable property in Cyprus.
Important Note: Foreign nationals are exempt from:
- income tax on interest and dividend income; and
- capital gains tax on income from the sale of real estate outside Cyprus.
- Foreign Nationals who earn at least €100,000- (One Hundred Thousand Euros) per annum from employment in Cyprus, for a period of 10 years initiating from the first year of their employment contract, are eligible to a 50% tax exemption on their income irrespective of the status of their tax residency or domicile.
This tax exemption is applicable only where a Foreign National was not:
- resident in Cyprus prior to their employment; and
- a Cyprus tax resident for at least three of the five years preceding the year of employment.
Note: Where earnings are decreased below €100,000-, the exemption is not granted.
- “90-Day” rule is another exemption, where remuneration from rendering services outside Cyprus to a non-resident employer or to an overseas permanent establishment of a resident employer for more than 90 days in a tax year is exempt from income tax.
The 90-Days are not require to be consecutive, provided that:
- The 90-Days fall within the same tax year;
- the individual maintains the Cypriot tax residency (ex. spends no more than 183 days abroad); and
- Employer-Employee relationship must be in place.
- Any gratuity income upon retirement is exempt from taxation.
- Any compensation received for death or injury, is also exempt from taxation.
- Where a Foreign National receives pension income from abroad, may choose to be taxed:
- in the same manner as a Cyprus-sourced pension; or
- under the special method, where the first €3,420- (Three Thousand Four Hundred and Twenty Euros) are tax free and any balance is taxed at a flat rate of 5%.
- Earnings deriving from the disposal of shares, bonds and other such financial instruments are also exempt from tax. Cyprus imposes no estate duty, gift tax, wealth tax or inheritance tax on foreign nationals.
- Cyprus is also subject to more than 65 double tax treaties, which corresponds to zero or minimal withholding tax rates on incomes such as pensions, royalties, dividends and interest received from abroad.
Where an individual is considering relocating to Cyprus, expert advice should be taken from lawyers with respect to the Cypriot and cross-border tax implications arising from relocation. Moreover, several sources of income which are eligible to tax-exemption in Cyprus, might be subject to contributions to the General Health Care System at different rates.
Our office is in the strong position to discuss the effects of the relocation and to provide advice on the most appropriate tax structure, where your business and earnings could be affected by the aforementioned tax factors.