CYPRUS – An attractive tax savings destination for individuals

Recent changes in global tax laws and regulations are driving countries to implement new tax laws and offer tax incentives in order to attract international businesses and high net worth individuals that will help them boost their economy and increase its cash flow.

 

During the past year Cyprus has enacted several new tax laws for individual taxpayers, providing in that way incentives for foreigners to relocate to Cyprus, start a business and as such increase the admittance of new capital into the country.

The most recent and important changes are identified and explained below in more detail.

50 % exemption from remuneration exceeding €100.000

 

Based on this provision an amount equal to 50% of remuneration over €100.000, from any employment exercised in Cyprus is exempt for a period of 10 years. This new measure is effective as from 1 January 2012 onwards, provided that the individual was not a tax resident of Cyprus before the commencement of the employment. For example, a Non- CY tax resident individual that will have annual salary from employment of €200.000, moves to Cyprus in 2018 and meets the criteria for CY tax residency.  Based on the new provision €100.000 out of the €200.000 will be exempted from taxation and as such the tax due for the year will be calculated only on the €100.000 minus all other allowances for the year.

This exemption can also be used in case the individual became a CY tax resident mid – year but his gross income if calculated on a yearly basis exceeds €100.000. For employments commencing as from 1 January 2015, the above exemption does not apply where the individual was a Cyprus tax resident for 3 or more tax years out of the 5 tax years immediately prior to the tax year of commencement of employment nor in the preceding tax year.

60 Day provision for Tax Residency

 

Up until 2017 the tax residency of an individual was calculated based on the 183 days in the Republic criteria. Following the amendment of the Cyprus Tax Law in 2017 an individual can also be considered a Cyprus Tax Resident provided that the individual shall not be tax resident in any other country during the year of assessment and shall not stay in any other country for a period exceeding 183 days in total in the same tax year. In addition the individual must fulfil all of the following:

• Must remain in Cyprus for at least 60 days in the year of assessment; and
• Must carry out any business in Cyprus; and/or works in Cyprus and/or holds an office in a company which is tax resident in Cyprus during the tax year; and
• Must maintain a permanent residence in Cyprus (owned or rented).

Finally, an individual who collectively fulfils the above conditions is not considered as tax resident of Cyprus in the tax year, if in that year the exercise of any business activity and/or employment in Cyprus and/or the holding of an office to a Cyprus tax resident have ceased.

 

Non – Domicile status

The term “domiciled in Cyprus” is defined by the law as a person who has either his/her domicile of origin or domicile of choice in Cyprus. Domicile of Origin is given based on the place of birth while Domicile of choice is earned by establishing a home with the intention 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 his domicile of origin in Cyprus.
• Has his domicile of origin in Cyprus but:

• He has and maintains his domicile of choice in a country other than Cyprus and was a Non -CY tax resident for any period of at least 20 consecutive years or
• He was a Cyprus tax resident for less than 17 out of the last 20 years prior to the year in question.

 

Individuals, who intend to live in Cyprus and become Cyprus tax residents qualifying as non-domicile, will immediately enjoy the following tax benefits for 17 years from the date of their relocation in the country:

• No Cyprus tax on receipt of dividend income from any company registered anywhere in the world;

• No Cyprus tax on receipt of interest income from anywhere in the world;

• No Special Defence Tax on rental income;

Following the above amendments in the law and tax incentives provided to individuals, Cyprus has become a very attractive destination for high net worth individuals that want to minimize their tax obligations and at the same time increase their investments. All the above provisions in combination with the already low percentage of corporate taxation, creates the perfect environment for individuals to relocate to Cyprus and start enjoying what Cyprus has to offer.