Cyprus' full EU membership, strategic location, warm climate, highly qualified professionals and list of personal tax incentives has made Cyprus an ideal setting for foreign nationals to relocate to.
The different types of taxes that are applicable to an individual that decides to relocate to Cyprus are listed below. Various exemptions and variances apply according to whether an individual is a Cyprus Tax Resident or not.
The 3 main types of applicable tax are:
1) Income Tax: Cyprus tax residents can benefit from relatively low income tax rates. Tax residents are liable to income tax on their worldwide income. The first ?19,500 is tax free. Non-Cyprus tax residents are liable to income tax on income sources within Cyprus only. See table below:
|Chargeable Income (?)||Tax Rates (%)|
|0 - 19,500||0|
|19,501 - 28,000||20|
|28,001 - 36,300||25|
|36,301 - 60,000||30|
An individual will be considered a Cyprus Tax Resident for a specific year if any of the below rules apply:
1. The 183 days rule:
If an individual resides in Cyprus for more than 183 days during a tax year;
2. The 60 days rule:
On 01 January 2017 the above rule was amended, in order for individuals who meet the below conditions, to also be considered as a Cyprus Tax Resident under the '60 day rule'. Conditions:
- An individual does not spend more than 183 days, either continuously or in total, of that tax year in another country and is not a tax resident in another country for that year;
- An individual spends at least 60 days in Cyprus during that year;
- The individual carries out a business and/or is working in Cyprus, and/or holds an office with a Cyprus tax resident company any time during that year;
- The individual either owns or rents a permanent residence in Cyprus;
2) The second type of main tax applicable is Special Defence Contribution (SDC) on dividend, interest and rental income. Prior to an amendment that was made and according to the already established SDC law, all Cyprus tax resident individuals were subject to SDC on the following income:
- 17% on dividends received in Cyprus or from abroad;
- 30% on passive interest received in Cyprus or from abroad;
- 3% on 75% of gross rental income;
On the 16th of July 2015 the Republic of Cyprus introduced the "Domicile" concept through an amendment that was made to the already established Special Defence Contribution (SDC) laws. The amendment has made a distinction between domiciled tax resident individuals and non-domiciled tax resident individuals.
Domiciled tax resident individuals will continue to be taxed the normal SDC tax rates as stated above on dividend, interest and rental income. Non-domiciled tax resident individuals will be fully exempt from SDC. However, such income will be subject to GHCS (General Health Care System) contributions at a rate of 2.65% as of 1st of March 2020.
|NON-DOMICILED TAX RESIDENT INDIVIDUAL|
|Type of Income||Special Defence Contribution|
Definition of domicile:
According to the provisions of the Wills and Succession Law, domicile can be obtained in two different ways:
- Domicile by Origin - domicile has been given at birth, normally on the father's side.
- Domicile by Choice -an individual has acquired domicile by forming a permanent residence and has the intention to reside in Cyprus permanently.
It must be noted that when assessing whether an individual is a domicile Cyprus tax resident or not for a specific year, we need to consider the number of years this individual has been a Cyprus tax resident. If an individual has been a Cyprus tax resident for at least 17 out of the last 20 years prior to the tax year under review, then irrespectively from the individual's origin, this individual will be taxed as a Cyprus domiciled individual for SDC purposes. SDC will be payable from the 18th year of individuals reside in Cyprus.
3) The third type of main tax applicable to an individual is Capital Gains Tax (CGT). CGT is payable on the sale of Cyprus property while on the sale of immovable property situated outside of Cyprus CGT is exempt.
Further benefits for foreign nationals in Cyprus are listed below:
- If an individual commences employment in Cyprus and was not a Cyprus tax resident during the year before the start of employment, then this individual may be entitled to the 50% exemption rule. Any individual commencing work in Cyprus and earning more than ?100,000 annually will be exempt from 50% of their taxable income for a period of 10 years. The calculation of the period of 10 years commences from the first year of employment. This exemption will not apply to any individual that was a Cyprus tax resident 3 out of 5 years preceding the year of commencement of employment. There is no restriction as to the amount of deduction granted;
- There is the option for overseas pension to be taxed under a special mode of taxation in which pensions are exempt from tax up to ?3,420 and any amount above that threshold is taxed at a flat rate of 5%. An individual can choose his pension to be either taxed under the special mode of taxation that was discussed above, or choose to be taxed under the normal individual income tax rates.
- The 90 day rule exemption:
- Remuneration obtained on salaried services performed outside the Republic of Cyprus for a non-resident employer or a permanent establishment outside the Republic of a resident employer, for a period of more than 90 days, is exempt.
- Cyprus tax grants exemptions on income tax for individuals for all of the below:
- Lump sums received by way of retiring gratuity, commutation of pension or compensation for death or injuries;
- Capital sums paid to individuals out life insurance policies, provident fund and pension funds;
- Rental income from preserved buildings is exempt from income tax and granted a deduction for expenditure incurred for the maintenance of a preserved building;
- Profit from the sale of securities is exempt from tax in Cyprus. Securities are defined as: Ordinary shares, founder shares, preference shares, options on shares, debentures, bonds, short position on titles to include futures, forwards, swaps and participation in companies. Such income will however be subject to GHCS at a rate of 2.65%;
- No inheritance or gift taxes are payable in Cyprus
- Widows pension: A Cyprus tax resident individual has two options when it comes to how their widow's pension will be taxed and this can be selected annually:
- Option 1 : The taxpayer to be taxed under the normal tax bands; or
- Option 2: The first ?19,500 of the pension will be tax free and any amount above this threshold will be taxed at a flat rate of 20%.
- Cyprus has agreed and signed more than 65 different treaties that provide reduced withholding tax rates or even nil tax rates on dividends, interest, pensions and royalties that have been received from abroad.
- Tax credit relief can be offered if a particular income was already taxed abroad. This relief can be obtained only when the original tax payment receipt is presented as confirmation.
- An individual can become Cyprus tax resident and obtain a Cyprus Tax Identification number (TIN) within a short period of time.
Cyprus tax system offers a number of benefits on income tax for physical persons, making the country an attractive destination for professionals and entrepreneurs willing to operate in Cyprus.
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.