In the past years, Cyprus has enacted several new tax laws for individual taxpayers, providing incentives for foreigners and high-net-worth individuals to relocate to Cyprus.
Part I – Tax Residence
The 183-day Rule
Until 2017, an individual was considered a Cyprus tax resident if they had spent more than 183 days in Cyprus during a tax year. As a result, if an individual spent less than 183 days in Cyprus during a tax year, the individual would not have been considered a tax resident.
The 60-day Rule
The Tax Law was amended in 2017 to allow an individual who spends a minimum of 60 days in Cyprus in a tax year to become a tax resident for the same year, provided certain conditions are satisfied. This is the “60-day rule”. The conditions that must be satisfied are:
- Does not stay in another country for one or more periods exceeding 183 days
- Is not a tax resident in another country for the same tax year
- Carries on a business in Cyprus or is employed in Cyprus or holds an office in a Cyprus tax resident company at any time during the tax year
- Maintains a permanent residence in Cyprus, either owned or rented
The Tax Law was further amended to clarify that an individual who fits all the conditions under the ’60-day rule’ would not be considered a tax resident if their business, employment, or office holding position has been terminated during that year.
Part II – Tax Benefits
Non-Domicile Status
The term “domiciled in Cyprus” is defined by the law as a person who has either their domicile of origin (given at birth) in Cyprus or domicile of choice (establishing a home to reside in Cyprus permanently or indefinitely).
As such, a Non-Domicile individual is someone who became a Cyprus tax resident but:
- Does not have their domicile of origin in Cyprus.
- Has their domicile of origin in Cyprus, but:
- Has and maintains their domicile of choice in a country other than Cyprus and was a Non-Cyprus tax resident for any period of at least 20 consecutive years or
- Was a Non-Cyprus tax resident for all years from 1995 to 2014 inclusive (before the commencement of the law in 2015).
Individuals who intend to live in Cyprus and become Cyprus tax residents qualifying as non-domicile will immediately enjoy the following tax benefits:
- No Cyprus tax is payable on receipt of dividend income from any company registered anywhere in the world
- No Cyprus tax is payable on receipt of interest income from anywhere in the world
- No SDC (Special Defence Tax) is payable on rental income
As such, a Cyprus tax resident not domiciled in Cyprus (non-dom) will NOT be subject to the SDC in Cyprus on any interest, rents, or dividends regardless of the source.
50% of Remuneration in Cyprus is Exempted from Taxation
- 50% of the remuneration from any employment exercised in Cyprus is exempt for ten years.
- Employment must commence from 1 January 2012 onwards.
- The individual was not a tax resident of Cyprus before the commencement of the employment.
- Annual remuneration exceeds €100,000.
Example: A non-EU tax resident individual moves to Cyprus, and their annual income will be €200,000.
Tax to be Paid
Only €100,000 out of the €200,000 will be taxed in Cyprus. Social Insurance is paid, and other personal allowances (e.g., life insurance) can be deducted up to 1/5 of income. Based on taxable income of €100,000 (without any deductions), the tax to be paid is €24,885 instead of €59,885 if the exemption was not provided.
Point to Note
The Cyprus Government intends to extend the exemption period to 17 years and include annual remuneration from employment that exceeds €55,000.
20% of Income within a Maximum Amount of €8,550 per Year
- 20% of the remuneration from any employment exercised in Cyprus is exempt for five years until 2025.
- Employment must commence from 1 January 2012 onwards.
- The individual was not a tax resident of Cyprus before the commencement of the employment.
- The benefit starts on 1 January following the year of commencement of the employment.
- The maximum benefit is €8,550 per year.
Example: A non-EU tax resident individual moves to Cyprus, and their annual income will be €50,000.
Tax to be Paid
€8,550 will be deducted from their taxable income (not the 20%). Social Insurance benefits are paid, and other expenses can be deducted. Based on taxable income of €41,450 (without any deductions), the tax to be paid is €4,720 instead of €7,285 if the exemption was not provided. The exemption will begin in the following tax year.
“90-Day” Rule
Remuneration from rendering services outside Cyprus to a non-resident employer or 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 Required 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 relationships must be in place.
Other Incentives
- 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, they 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, 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, wealth, or inheritance tax on foreign nationals. Cyprus is also subject to more than 65 double tax treaties, corresponding to zero or minimal withholding tax rates on incomes such as pensions, royalties, dividends, and interest from abroad.
Part III – Epilogue
Following these law amendments and tax incentives provided to individuals, Cyprus has become a very attractive destination for high-net-worth individuals who want to minimize their tax obligations and increase their investments. All the above provisions, combined with the already low percentage of corporate taxation, create the perfect environment for individuals to relocate to Cyprus and enjoy what Cyprus has to offer.
