As of 1st November 2020, the Cyprus Investment Programme is closed until further notice. Contact us for further information.
Cypriot citizenship alone does not affect the tax treatment of an individual or family unless they take up residence in Cyprus. Cyprus' connecting factors for tax jurisdiction are residence and domicile (not nationality) and therefore the link between Cyprus Citizenship & Taxation is not obvious.
Cyprus Taxation of New Citizenship: Domicile
A person who is granted citizenship under the Cyprus Investment Programme is not deemed to acquire a domicile of choice by virtue simply of being granted citizenship. A number of onerous steps need to be taken to shed one's domicile of origin and it is safe for a client to assume that his domicile will not change 'by mistake' even by taking up residence as a citizen of Cyprus.
Cypriot Taxation of Non-Residents
Therefore the main variable and connecting factor is residency. By taking up residence, an individual (whether a citizen or not) enters into a non-dom regime akin to the regime applicable in the UK, even if without the complicated residence tests and rules applicable in the British tax system. Basically, a Cypriot resident who is not domiciled in Cyprus is chargeable to tax in Cyprus only on a source and remittance basis. Therefore he would be chargeable to tax only on income arising in Cyprus and on foreign source income if and to the extent that it is remitted /received in Cyprus. Foreign source capital gains are out of the scope of taxation even if remitted to Cyprus. The tax planning opportunity here is that foreign source income and foreign capital gains that is kept in bank accounts outside Cyprus remain out of the scope of Cyprus tax.
Cyprus Tax Residency
Cypriot Income Tax Law defines a "resident in the Republic", when referring to individuals as an individual who stays in the Republic for a period or periods exceeding in aggregate 183 days in the year of assessment. A "nonresident or resident outside the Republic" will be construed accordingly.
Resident persons will be charged to tax on their worldwide income, subject to significant tax holidays on most income sources.
Non-resident persons will be charged to tax on their income accruing or arising in respect of:
- Income from any trade, business, profession or vocation carried on or exercised as far as attributable to a permanent establishment in Cyprus;
- Profits or other benefits from any office or employment exercised in Cyprus;
- Any pension as a result from a past employment exercised in Cyprus with the exception of any pension paid out of funds created by the Government or a local authority;
- Rents from property situated in Cyprus;
- Trade Goodwill from sources within Cyprus.
Cypriot Citizenship & Tax Residence
The Cyprus Investment Programme does not require applicants to satisfy a one-year residency requirement. Though this does not strictly entail a minimum of 183 days of physical presence, it does imply fiscal residence at least during this first year. This establishes an indirect link between Cyprus Citizenship & Taxation.
Tax Planning for Non-Domiciled Cyprus Citizens
Other opportunities exist for the running of companies in Cyprus:
- company tax rate: 12.5%
- holding companies offer opportunities for exemption of dividends from subsidiaries.
- Companies can bank anywhere in the world and can be owned by shareholders of any nationality.
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.