Living in Cyprus: A scrumpTAXious Proposition

Contributed by Costas Tsielepis & Co Ltd, 07 January, 2016

Cyprus has always been an attractive tourist destination, as well as a great place to live and work and call home.

A 'jewel' of the Mediterranean and the mythical birthplace of Aphrodite, the island of Cyprus combines a rich cultural, historical and archaeological heritage with great natural beauty and a friendly, inviting population. Renowned for its gorgeous weather and beaches, amazing food, breath-taking sceneries and an abundance of quality housing, the island has so far won over the hearts of over 180.000 foreign nationals who live and work here, making up 22% of the country's total population.

Now, Cyprus has further reinforced another aspect of its allure: That of personal taxation.

 

To move or not to move?

When considering a move to another country there are many things to think about apart from the initial thoughts of 'am I doing the right thing?'

Depending on your reasons for moving to Cyprus, whether it is for business purposes, for a new start with your whole family, to retire or whether you wish to find a career opportunity, this publication aspires to offer a detailed rundown of the tax aspects of such a move.  

 

What's in it for me?

Cyprus' incentives for personal tax residency are profound. With its ideal geographical location, EU membership, reliable legal system, extensive double-tax treaty network, one of the lowest corporate tax rates of 12,5%, with favourable personal tax advantages through the non-domicile rules, its well-cultured and developed workforce and business-friendly environment, Cyprus is an ideal country for private domiciliation.

With regard to personal taxes, Cyprus has one of the lowest top statutory personal income tax rate of 35% for amounts exceeding €60.000 annually and no tax on income of up to €19.500. At the same time, it also offers a number of very attractive personal tax incentives, through tax exemptions and deductions, in order to attract high wealth individuals.

Below is an analysis of the main provisions of Cyprus' personal income tax regime as well as the key tax incentives provided to individuals who wish to relocate to Cyprus.

 

1. TAX RESIDENCY AND DOMICILE

The key to understanding personal taxation in Cyprus lies with the important concepts of 'tax residency' and 'domicile'.

  1. Tax-residency

    A Cyprus tax resident physical person is any person who is physically present in Cyprus for more than 183 days in a calendar year. It does not matter the purpose of being in Cyprus, nor is it a condition that a Cyprus tax resident person owns or rents accommodation in Cyprus. It is literally based on the number of days without any further conditions.

    In calculating the days:

    • the day of departure is considered a day outside of Cyprus
    • the day of arrival is considered a day in Cyprus
    • arriving in Cyprus and departing on the same day is considered a day in Cyprus, and
    • departing from Cyprus and arriving on the same day is considered a day outside of Cyprus.
  2. Domicile

    According to the domicile concept under the tax legislation, every person has at any given time either:

    1. the domicile received by him/her at birth ('domicile of origin'), or
    2. the domicile (not being the same as the domicile of origin) acquired or retained by him/her by his/her own act ('domicile of choice').

    Under (i) above, the domicile of origin of a legitimate child is that of the father's, or in the case of an illegitimate child, that of the mother's.

    Under (ii) above, a person may acquire a domicile of choice by establishing his/her home at any place in Cyprus with the intention of permanent or indefinite residence.

    For tax purposes however, a non-domiciled individual will be deemed as domiciled in Cyprus if he/she has been a Cypriot tax resident for at least 17 out of the last 20 years prior to the relevant tax year (deemed domicile rule).

    An individual who has a domicile of origin in Cyprus, may still qualify as non-domiciled subject to certain conditions, namely to have not been a Cyprus tax resident for a consecutive period of 20-years.

 

2. TAXABLE INCOME

A tax resident individual, irrespective of his/her domicile status (you may refer to paragraph 4 below for more information relating to domiciliation), is subject to income tax on his/her worldwide income, although there are a number of favourable deductions and exemptions in the legislation as explained below.

A non-tax resident individual is subject to income tax on income accruing or arising only from sources within Cyprus and is exempt from any Cyprus tax on dividend and interest income.

However, where a person is non-domiciled in Cyprus, but is a Cyprus tax resident, the following main benefits exist, for a period of at least 17 years, i.e. until the person is deemed domiciled (see above):

 

3. INCOME TAX RATES

Taxable income, i.e. gross income less exemptions less deductions, up to €19.500 is exempt from income tax.  The taxable income exceeding this amount is subject to progressive tax rates ranging from 20% to 35% (the higher rate being for taxable income exceeding €60.000).

 

4. EXEMPTIONS

The following exemptions are available for individuals moving to Cyprus to commence employment:




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