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Contributed by Fiducenter, 16 June, 2017
As part of its effort to attract foreign high net worth individuals as well as to attract qualified individuals to relocate and work in the country, either on their own or as part of a group structuring/reorganisation, Cyprus offers some very attractive incentives.
These incentives, together with some other advantages that Cyprus has to offer, such as its geographical location, its sunny weather, the business-friendly time zone, low crime and pollution and the top quality of facilities on offer, such as marinas, golf courses, private schools and universities, are expected to significantly increase the number of foreign people investing in Cyprus over the coming years.
In this article we will be examining these incentives, starting from the flagship Citizenship by Investment Scheme.
Citizenship by Investment (Passport) Scheme
Cyprus offers a very attractive Citizenship by Investment Scheme, which has become extremely popular as more and more people see Cyprus as the gateway (being the far eastern border of the EU) to the great freedoms granted by the EU to its Member States and their citizens, especially the freedom to conduct business in the Union. The scheme involves the provision of citizenship to individuals upon meeting certain criteria, either personally, or through participation as a shareholder or senior executive in a company/companies. The criteria have recently been made more attractive by reducing the relevant thresholds.
In the case of senior manager of a company, s/he may submit an application provided that his/her remuneration generates tax revenue for the Republic of Cyprus of at least EUR100,000 over a period of three years and provided that this tax has already been paid or prepaid.
The applicant should make the necessary investment in the three years preceding the date of application and shall keep the said financial assets in his/her possession for a minimum period of three years from the date of his/ her naturalization.
An interested party can choose among a range of investment options, including the following:
1. Direct investments
The applicant must have made a direct investment of at least EUR2.0 million in Cyprus. Direct investments may fall under one of the following categories:
(a) Investment in real estate, land development and infrastructure projects (residential buildings, offices, stores, hotels etc. or developments of a similar nature, with the exception of unused land).
(b) Investment in financial assets of Cypriot companies or Cypriot organizations.
The applications shall be evaluated to verify that the companies or organizations have proven physical presence in Cyprus, with significant activity and turnover and employ at least five (5) Cypriot or citizens of European Union member-states. The minimum number of employees shall increase, if more than one applicant invest simultaneously or almost simultaneously in the same business or company. In addition, the employees of the companies need to have legally and continuously resided in Cyprus during the five years preceding the application submission date.
(c ) Investment in Alternative Investment Funds or financial assets of Cypriot companies or Cypriot organizations that are licensed by CySec.
The purchase of financial assets of Cypriot companies or organizations of at least EUR2,0 million, such as bonds, bills and securities, issued with the approval of the CySec, by companies that have proven physical presence and substantial economic activity in the Republic of Cyprus, and have as a purpose the financing of the investment plans of these companies or organizations exclusively in Cyprus, based on an investment plan, fall under this criterion.
It is noted that the purchase by an AIF of units of other AIFs is not considered eligible.
2. Combination of the Investment Options above
The applicant must have a combination of above EUR2.0 million.
Within this criterion the applicant may purchase special government bonds of the Republic of Cyprus, up to EUR500,000, which will be issued by the Public Debt
Management Office of the Ministry of Finance, on condition that the investor will retain these bonds for a three year period. The characteristics and the terms of these special bonds will be determined by the General and Special Issue Terms of the Government Bonds of the Republic of Cyprus. Investments in government bonds through the secondary market are not considered eligible.
Terms and Conditions
Besides satisfying one of the investment options above, in order to qualify for the scheme the applicant must satisfy some other conditions, as follows:
(a) The applicant must have a clean criminal record. Furthermore, the his/her name shall not be included in the list of persons whose assets are required to be frozen within the boundaries of the European Union.
(b) The applicant must own a permanent privately-owned residence in the Republic of Cyprus, of a minimum market value of EUR500,000 (excluding VAT). In case that the purchase value of the permanent privately owned residence in Cyprus exceeds the amount of EUR500,000, part of this additional amount can be used for purposes of supplementing the total amount of the investment made on the basis of the criteria of Parts 1 and 2 above.
Additionally, it is noted that if the applicant has invested in housing unit/ units on the basis of the aforementioned criterion 1.(a), the purchase of another permanent residence in Cyprus will not be required, if at least one of these housing units is worth at least EUR500,000, plus VAT, provided that the applicant retains the possession of the residence for life. This is very beneficial as it can potentially reduce the total investment amount to EUR2,0 million.
(c) In case that any condition is found by periodic controls not to be satisfied, the citizenship may be revoked.
It is important to note that there are special provisions to accommodate an independent citizenship request from the spouse/partner of the applicant, his/her parents, etc. One such provision concerns the possibility to jointly buy a residence, given that the total value of the residence covers the amount of EUR500.000 for each applicant.
Last by certainly not least, there are no language and medical tests, no interviews and no physical residency requirements in order to qualify for the scheme.
Application and Supporting Documents
Several documents must accompany the application for citizenship, such as the deed of purchase and certificates of settlement for the residence, certificate of clean criminal record, documents to substantiate the Investment Option/s followed by the applicant (specified by a guideline issued by the Ministry of Interior for each Investment Option), etc.
It must be noted that ultimately, the granting of naturalisation is a prerogative of the Council of Ministers.
It should be noted that the Cypriot passport ranks among the strongest in the world, as holders are able to travel to 146 countries without a visa.
According to the updated Passport Index, Cyprus gets a Passport Power Rank of 13, and an Individual Power Rank of 36 globally.
Permanent Residence Permit Scheme
Permanent Residence is a special class of permit that relieves its holders from time consuming procedures associated with other types of permits, such as consular inspections, renewal etc.
The Ministry of Interior implements a "fast-track" procedure in order to issue the relevant permit, assuming the requirements set by the scheme are satisfied. The main criterion in order to qualify for the scheme is the acquisition of up to two properties in Cyprus with a total value of not less than EUR300,000.
Other criteria and characteristics of the scheme are:
Other Immovable Property-Related Incentives
A reduced VAT rate of 5%, compared to the standard rate of 19%, applies on the construction or acquisition of residential property in Cyprus which is to be used as the primary and permanent residence. This applies even for property acquired by a person who does not ordinarily reside in Cyprus as long as the property will be used as a residence while this person is in Cyprus.
The Land Registry (Duties and Fees) Law provides for full exemption from transfer fees for all transfers of real estate property for which VAT was payable on the transaction and 50% exemption from transfer fees for all other transfers.
Furthermore, the very advantageous full exemption from Capital Gains Tax on any future gains from the sale of a property situated in Cyprus if purchased until 31 December 2016 is to be extended until the end of 2018 at least. Finally, as from 2017, Immovable Property Tax (IPT) is abolished. Until tax year 2016, the owner of immovable property situated in Cyprus was liable to pay an annual IPT which is calculated on the market value of the property as at 1 January 1980.
Incentives to Relocate to Cyprus
With regards to incentives to relocate to the country, Cyprus offers schemes for different purposes, from promoting the physical establishment/relocation of foreign companies and groups to motivating Cypriots studying abroad to return to Cyprus upon graduating, to giving yet one more motive for non-residents to retire in Cyprus.
1. "Domicile" concept
The concept of 'domiciled' persons for what concerns a tax levied on certain sources of income, known as Special Contribution for Defense, was introduced as from July 2015. Individuals who are tax residents of Cyprus but are not considered to be "domiciled" in Cyprus are exempt from payment of Special Contribution for Defense on dividends, interest and rental income, even if such income is generated in Cyprus.
2a. Tax exemption on income of a non-resident moving to Cyprus for employment
This measure was implemented to attract foreign companies or groups to establish themselves or, transfer a part of existing operations to Cyprus by offering a 50% exemption on personal income. The exemption applies to employment income of a non-resident person taking up residence in Cyprus to work for an employer in the country. This exemption applies for a period of ten years starting from the first year of employment provided that the employment income of the employee exceeds EUR100.000 per annum.
2b. Tax exemption on income of a non-resident moving to Cyprus for employment
The exemption relates to the lower of 20% of employment income or EUR8,550 and applies for five years starting from the 1st of January of the year following the year of employment. The exemption can only be claimed until 2020.
3. Special tax rate for pension income for expats
Foreign pensions have a very favourable status in Cyprus, involving a flat annual income tax charge of 5% for amounts exceeding EUR3,420 per annum. What is more, the tax payer has the right to choose to be taxed either under the special mode of taxation as stated above or at normal rates. The latter option might be more beneficial, depending on the circumstances, considering that the first EUR19,500 of personal income per annum is tax free.
It should be stressed that as pension income is generally treated as earned income in the country of origin, it is only by concession that a lower rate can be paid by living abroad as an expat. Such concessions are usually determined by Double Tax Treaties (DTTs) and Cyprus has many such treaties, which include the relevant provisions. For example the DTT between Cyprus and UK, allows UK expatriates living in Cyprus to have their UK-source pension income taxed in Cyprus and not in the UK.
We are here to help
If any of the above schemes and incentives are of interest to you or if you have any query about setting up in and/or relocating to Cyprus, we would be more than glad to discuss it with you and work out the best possible solution.
At Fiducenter we have been providing our clients with international business solutions and professional services since 2005. We provide a comprehensive range of international business services related to Cyprus, including professional consultation, advisory services on specific transactions, formation of investment funds, companies, trusts and other investment and business vehicles, immigration, estate planning and administration, bespoke services related to specific sectors and structures and much more. We are one of the very first companies licensed for the provision of Administrative Services by the Cyprus Securities and Exchange Commission (L/N: 8/196) and we are a founding member and current president of the Cyprus Fiduciary Association.
In relation to the Citizenship by Investment and Permanent Residency schemes in particular we can offer the following services:
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