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Having considered the numerous challenges arising from increased competition, globalization and the recent Global financial crisis, the Government of Cyprus is promoting numerous measure and incentives to establish Cyprus appeal as an investment destination and as a ‘ second home ‘ for High Net Worth Individuals.
Having considered the numerous challenges arising from increased competition, globalization and the recent Global financial crisis, the Government of Cyprus is promoting numerous measure and incentives to establish Cyprus appeal as an investment destination and as a ‘ second home ‘ for High Net Worth Individuals.
Cyprus has a number of comparative advantages that have contributed towards the country becoming an important international business and a place for a High Net Worth individuals relocating in Cyprus.
Personal Taxation
Cyprus has developed an attractive individual tax regime with low income tax rates and appropriate concessions for international and mobile professionals.
An individual is considered resident in Cyprus for income tax purposes if they are present in Cyprus for a period exceeding 183 days in the tax year in question. If this condition is met, tax is imposed on income arising from sources within Cyprus and outside Cyprus.
Personal taxes and contributions
The main types of direct taxes applicable to an individual in Cyprus are:
income tax
special defence contribution on dividend, interest and rental income
capital gains tax on gains from the sale of Cypriot real estate
Tax residency and non Domicile
An individual is considered resident in Cyprus for income tax purposes if they are present in Cyprus for a period exceeding 183 days in the tax year in question. If this condition is met, tax is imposed on income arising from sources within Cyprus and outside Cyprus.
Conditions:
does not spend more than 183 days in any other country;
is not a tax resident of any other country;
spends at least 60 days in Cyprus;
maintains a permanent home in Cyprus that is either owned or rented;
carries on a business in Cyprus, is employed in Cyprus or holds an office in a Cyprus
tax resident person at any time during the tax year.
Domicile
In July 2015, in an effort to enhance the competiveness, fairness and simplicity of the Cyprus Tax system and make it more attractive to foreign investors, the Cyprus Government passed among others the introduction of “Domicile” concept through an amendment to the Special Contribution for the Defence of the Republic of Cyprus Law of 2002 as amended (hereinafter referred to as the ‘SDC Law’).
The new “non-dom” rules provide that individuals who are not domiciled in Cyprus, as per the requirements set out in the relevant legislation, would be exempted from payment of the special defense tax on dividends, interest and rental income, despite the fact that they may be Cypriot tax residents. This exemption will apply to income even if derived from sources within Cyprus and regardless of whether such income is used in Cyprus.
Advantages for the 'Non-Dom' Individuals:
a) A non-dom earning dividend income, from foreign as well as local investments will not be subject to SDC in the amount of 17% as of 16 July 2015. In addition, dividend income is unconditionally exempt from Income Tax. Therefore the tax payable by a Cyprus resident non-dom on dividend income will be zero.
b) Interest: A non-dom earning interest income, from foreign as well as local sources, will
not be subject to SDC in the amount of 30% as of 16 July 2015. In addition, interest income is also exempt from Income Tax. Therefore the tax payable by a Cyprus resident non-dom on interest income will be zero.
c) Rental income: A non-dom earning rental income, from properties in Cyprus or abroad, will not be subject to SDC in the amount of 3% as of 16 July 2015. Rental income will only be subject to Income Tax at the normal rates (following a 20% allowance).
Taxable income
A Cypriot tax resident individual, irrespective of his/her domicile status, is subject to income tax on his/her worldwide income, subject to exemptions.
A tax resident individual who is non-domiciled in Cyprus is exempt from tax on dividend and interest income.
Non-Cypriot tax resident individual is subject to income tax on income accruing or arising only from sources within Cyprus and is exempt from tax on dividend and interest income.
Personal income tax rates
Taxable income up to €19,500 is effectively exempt from income tax. Taxable income exceeding this amount is subject to progressive income tax rates ranging from 20% to 35% (for income exceeding €60,000).
Key Tax Benefits for Expatriate Individuals
Income tax exemptions for taking up employment in Cyprus.
An expatriate individual relocating to Cyprus (irrespective of his/her tax residency or domicile status) is eligible to one of the following income tax exemptions on employment income:
0% of the remuneration from any employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his/her employment in Cyprus. The exemption applies for a period of ten years starting from the first year of employment provided that the employment income of the employee exceeds €100,000 per annum.
The 50% tax exemption would not be granted to an individual who has been a Cypriot tax resident for at least three out of the last five years immediately prior to the year of commencement of employment or to an individual who has been a Cypriot tax resident in the tax year immediately prior to the year of commencement of employment.
20% of the remuneration or €8,550 (whichever is the lower) from any employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his/her employment in Cyprus. The exemption applies for a period of five years from 1 January following the year of commencement of the employment and applies for tax years up to 2020.
Income tax exemption for overseas employment
Remuneration from rendering services outside Cyprus to a non-resident employer or to an overseas permanent establishment of a resident employer for more than 90 days in a tax year is exempt from income tax.
No tax on dividend and interest income
Cyprus imposes no withholding taxes on payments to non-tax resident persons (companies or individuals) in respect of dividends, interest and royalties used outside Cyprus, irrespective of whether the recipient of the payment resides in a treaty country or not.
This provides for excellent profit repatriation opportunities and when combined with the tailor-made financing structures implemented through the use of Cyprus companies and the novel IP regime, allows Cyprus to pose as an ideal holding jurisdiction, minimising withholding tax exposure for international businesses and multinational groups.
No tax on gains arising from the disposal of investments
Foreign capital gains are exempt As Cyprus’ tax legislation clearly applies the separation of Income and Capital, capital gains are not included in the ordinary trading profits of a business but instead are taxed separately under the Capital Gains Tax Law (CGT).
Capital gains tax is only imposed on the sale of immovable property situated in Cyprus as well as on the sale of shares in companies (other than quoted shares) in which the underlying asset is Immovable
Property situated in Cyprus. Capital gains tax is imposed at a flat rate of 20% after allowing for indexation.
What is critical for international businesses is that capital gains that arise from the disposal of immovable property held outside Cyprus, as well as shares in companies which may have as an underlying asset immovable property situated outside Cyprus and shares of non Cyprus companies are completely exempt from capital gains tax.
Capital Gains Tax for properties (land and land with buildings) purchased by the end of 2016 are exempt, while a reduction of 50% on property transfer fees has been imposed, payable at the Land Registry upon transfer of a title deed in the name of the purchaser.
Access to an extensive network of Double Tax Treaties and EU Tax Directives
Cyprus has over the years developed an extensive network of Double Tax Treaties, facilitating international investment to and from Cyprus. Cyprus has managed to conclude and maintain over the years a number of treaties with exemplary beneficial provisions that when combined with the favourable aspects of Cyprus’ tax system provide an invaluable tool for international businesses.
Cyprus has over the last three decades, been used extensively for International Tax planning by multinational companies from all over the world including the United States, India, Canada and many European countries like Germany, the UK, Denmark and Sweden.
It is an undisputed fact that most of the investment into Central/Eastern Europe including Russia and Ukraine, is routed through Cyprus because of the very advantageous tax treaty network and the local tax provisions.
To facilitate international business, Cyprus has signed almost 60 double taxation agreements while negotiations for a lot more new agreements are currently taking place and are expected to be concluded in due time.
No tax on retirement gratuity and special tax regime on foreign pension income.
Any lump sum received as a retirement gratuity is exempt from tax.
Furthermore, a Cypriot tax resident individual receiving pension income from services rendered abroad may choose to be taxed at a flat rate of 5%, on amounts exceeding €3.420 per annum.
Estate duty, wealth tax, gift tax and inheritance tax
There is no estate duty, wealth tax, gift tax or inheritance tax in Cyprus.
Sample Personal Tax Computation
To numerically demonstrate the tax benefits available to qualifying expatriate individuals relocating to Cyprus, we calculate below the Cypriot tax liability of a Cypriot tax resident non-domiciled individual who takes up employment in Cyprus, earns income from investment sources and realizes a capital gain on the sale of real estate situated overseas.
An individual with the above profile would be liable to total Cypriot taxes and contributions of approximately €20,000 arising on his/her employment income. His/her investment income would be fully exempt from tax in Cyprus.
*DISCLAIMER: This article and its publication are intended to provide a brief introduction and act as a general guide. This is provided for information purposes only and cannot be utilized as a substitute for professional advice. This document does not represent a legal opinion and one must not rely on it without receiving independent advice based on the particular facts of its own case. No responsibility is accepted by the author or the publishers for any loss suffered from acting or refraining from acting based on the contents of this publication.
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