Mundo Offshore has interviewed Mr. Charles Savva, managing director at Savva & Associates, on Cyprus Tax Residency. Savva & Associates is one of the leading firms in Cyprus specialising in investment residency and citizenship solutions.
1. What are the tax residency criteria individuals need to meet in order to qualify as tax resident of Cyprus?
There are two routes available for individuals to qualify as Cyprus tax residents:
- Being physically present in Cyprus for a period exceeding 183 days during the tax year (i.e. 1st January to 31st December), or
- Being physically present in Cyprus for a period exceeding 60 days during the tax year and meeting all the below conditions:
- Not being in another country for more than 183 days during the tax year,
- Not being tax resident in any other country during the tax years,
- Is an officer/employee in a Cyprus tax resident entity and earns a remuneration from this position.
- Maintains a place of residence in Cyprus (either owned or rented).
2. How is tax applied to tax residents and at what rates?
An individual who qualifies as a tax resident in Cyprus is taxed on income accruing or arising from sources both within and outside Cyprus (i.e. worldwide income).
Tax is applied on an individual net taxable income using the below scalable rates:
|0 – 19,500||0||Nil|
|19,501 – 28,000||20||1,700|
|28,001 – 36,300||25||3,775|
|36,301 – 60,000||30||10,885|
3. Are there any types of income which are exempt from tax and/or any type of deductions available?
There are various types of income which are exempt from tax, such as:
- Interest income
- Profits from the sale of securities (e.g. shares, bonds etc).
- Lump sum repayments from life insurance schemes, retiring gratuities or other similar payments.
- Remuneration from salaried services carried out outside of Cyprus for more than 90 days.
In addition to the above, there are various deductions available, such as:
- Expenses of rented properties – applied by default as 20% of rental income.
- Tax depreciation for fixed assets used to generate taxable income.
- Subscriptions paid to unions or professional bodies.
- Donations to approved charitable organisations.
- Social insurance, life insurance and pension contributions are deductible up to 1/6th of an individual's taxable income.
- Investments into "approved" innovative business are deductible up to 50% of an individual's taxable income.
4. Are there any incentives available for new tax payers?
The Cyprus government has over the past few years introduced various incentives in order to attract high calibre people to Cyprus. The tax incentives align with the objectives of the Cyprus Investment Programme, where investors can also qualify for Cyprus citizenship.
From a tax perspective, the following are the most notable incentives:
- 50% exemption from tax on remuneration received from employment exercised in Cyprus by an individual who was not tax resident in Cyprus before the commencement of his employment. The exemption applies for a period of 10 years starting from the year of employment provided that the annual remuneration exceeds EUR 100,000.
- 20% exemption (capped at EUR 8,550) from tax on remuneration from any employment exercised in Cyprus by an individual who was not tax resident in Cyprus before the commencement of his employment, for a period of 5 years commencing from 1st January following the year of commencement of the employment with the last eligible tax year being 2020.
- Exemption from Special Defence Contribution ("SDC") for non-domiciled tax residents. SDC is a special mode of taxation imposed (on an accruals basis) on dividends (at 17%), interest (at 30%) and rental income (at 3% on 75% of the rental income). An individual qualifies as non-domiciled if he/she has a domicile of origin outside Cyprus (i.e. he/she wasn't born in Cyprus or his/her parents were not born in Cyprus, subject to conditions) or if he/she was a tax resident of Cyprus for a period up to 17 out of the previous 20 years prior to the tax year of assessment. In simple terms, a newly registered tax resident who has no previous ties with Cyprus should qualify as non-domiciled tax resident for a period of 17 years from the year he/she qualifies as tax resident of Cyprus.
5. Are there any other modes of taxation applied?
Other than the above, there is the capital gains tax which only applies on profits generated from direct or indirect disposal of immovable property located within Cyprus.
Cyprus does not have any other modes of taxation such as inheritance tax, wealth tax etc.
6. Why would an individual consider migration his/her tax residency to Cyprus?
The very attractive Cyprus personal tax regime allows individuals to relocate their personal tax residency to Cyprus, with minimal physical presence requirements, and enjoy, for at least 17 years as things currently stand, a full exemption from tax on their worldwide dividend and interest income, and furthermore enjoy a permanent exemption from tax on any gains generated from the disposal of securities, subject to conditions.
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.