Tax Benefits for Foreign Nationals in Cyprus

Contributed by Oxford Tax Solutions, 18 January, 2021

Cyprus' full EU membership, strategic location, warm climate, highly qualified professionals and list of personal tax incentives has made Cyprus an ideal setting for foreign nationals to relocate to.

The different types of taxes that are applicable to an individual that decides to relocate to Cyprus are listed below. Various exemptions and variances apply according to whether an individual is a Cyprus Tax Resident or not.

The 3 main types of applicable tax are:

1) Income Tax: Cyprus tax residents can benefit from relatively low income tax rates. Tax residents are liable to income tax on their worldwide income. The first EUR 19,500 is tax free. Non-Cyprus tax residents are liable to income tax on income sources within Cyprus only. See table below:

Chargeable Income (EUR)    Tax Rates (%
0 to 19,500 0
19,501 - 28,000 20
28,001 - 36,300 25
36,301 - 60,000 30
over 60,000 35

 

An individual will be considered a Cyprus Tax Resident for a specific year if any of the below rules apply:

1. The 183 days rule:

If an individual resides in Cyprus for more than 183 days during a tax year;

2. The 60 days rule:

On 1 January 2017 the above rule was amended, in order for individuals who meet the below conditions, to also be considered as a Cyprus Tax Resident under the '60 day rule'. Conditions:

  1. An individual does not spend more than 183 days, either continuously or in total, of that tax year in another country and is not a tax resident in another country for that year;
  2. An individual spends at least 60 days in Cyprus during that year;
  3. The individual carries out a business and/or is working in Cyprus, and/or holds an office with a Cyprus tax resident company any time during that year;
  4. The individual either owns or rents a permanent residence in Cyprus;

2) The second type of main tax applicable is Special Defence Contribution (SDC) on dividend, interest and rental income. Prior to an amendment that was made and according to the already established SDC law, all Cyprus tax resident individuals were subject to SDC on the following income:

On the 16th of July 2015 the Republic of Cyprus introduced the "Domicile" concept through an amendment that was made to the already established Special Defence Contribution (SDC) laws. The amendment has made a distinction between domiciled tax resident individuals and non-domiciled tax resident individuals.

Domiciled tax resident individuals will continue to be taxed the normal SDC tax rates as stated above on dividend, interest and rental income. Non-domiciled tax resident individuals will be fully exempt from SDC. However, such income will be subject to GHCS (General Health Care System) contributions at a rate of 2.65% as of 1st of March 2020.

NON-DOMICILIED TAX RESIDENT INDIVIDUAL
Type of Income    Special Defence Contribution
Dividends Exempt
Interest Exempt
Rental Income Exempt

 

Definition of domicile:

According to the provisions of the Wills and Succession Law, domicile can be obtained in two different ways:

  1. Domicile by Origin - domicile has been given at birth, normally on the father's side.
  2. Domicile by Choice - an individual has acquired domicile by forming a permanent residence and has the intention to reside in Cyprus permanently.

It must be noted that when assessing whether an individual is a domicile Cyprus tax resident or not for a specific year, we need to consider the number of years this individual has been a Cyprus tax resident. If an individual has been a Cyprus tax resident for at least 17 out of the last 20 years prior to the tax year under review, then irrespectively from the individual's origin, this individual will be taxed as a Cyprus domiciled individual for SDC purposes. SDC will be payable from the 18th year of individuals reside in Cyprus.

3) The third type of main tax applicable to an individual is Capital Gains Tax (CGT). CGT is payable on the sale of Cyprus property while on the sale of immovable property situated outside of Cyprus CGT is exempt.

Further benefits for foreign nationals in Cyprus are listed below:

Cyprus tax system offers a number of benefits on income tax for physical persons, making the country an attractive destination for professionals and entrepreneurs willing to operate in Cyprus. For further information please contact Oxford Tax Solutions to arrange a meeting.

Tags: Expats | tax | tax breaks | individual income tax |

 

 





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