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In the era of changes in the international tax landscape, establishment of substance in their chosen jurisdiction is of imperative importance to the businesses, particularly when they are looking to relocate for purposes of tax efficiency.

 

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Personal Taxation in the Republic of Cyprus

PERSONAL TAXATION AND CONTRIBUTIONS
Any individual who is a tax resident in Cyprus is subject to the following taxes:
• income tax
• special defence contribution on dividend
• interest and rental income
• capital gains tax on gains from the sale of real estate in Cyprus

It is to be noted however that the obligation to special defence contribution depends on the domicile status of any individual person being a Cyprus tax resident.

In addition to the above, any individual working in Cyprus may also be subject to social insurance and other contributions.

Notwithstanding of the fact that a person has established themselves as non-domicile residents in Cyprus and therefore not subject to Special Defence Contribution tax, a person which is Cyprus tax resident shall be subject to personal on their worldwide income, subject to exemptions and allowances.

Personal income tax rates in Cyprus
Taxable Income Rate Amount
Taxable Income €19.501 - €28.000 Rate 20% Amount €1.700
Taxable Income €28.001 - €36.300 Rate 25% Amount €2.075
Taxable Income €36.301 - €60.000 Rate 30% Amount €7.110
Taxable Income €60.000 - €100.000 Rate 35% Amount €14.000

Establishment of Tax residency -The 183 Day Rule
Tax residency in Cyprus is established where an individual spends more than 183 days in Cyprus.

Establishment of Tax residency - The 60 days rule
As from 1 January 2017, an individual may also be considered a Cyprus tax residency subject to the below
• is not a resident of any other country for a period exceeding 183 days in aggregate
• he/she is not a tax resident by any other country
• resides in Cyprus for at least 60 days
• has other defined Cyprus ties, such as carrying a business activity in Cyprus and/or be employed in Cyprus and/or hold an office (director) of a company tax resident in Cyprus at any time in the tax year, provided that such is not terminated during the tax year. The individual must also maintain in a permanent residential property in Cyprus, either by rent or ownership.

Establishment of a Non-Domicile Status
In accordance with the provisions of the Wills and Succession Law domicile may be by origin, i.e. the domicile by birth or domicile established by the physical presence in a specific country.

Irrespective of the domicile of origin or choice, individuals who have been tax residents in Cyprus for at least 17 out of the last 20 years prior to the tax year in question, will be deemed to be domiciled in Cyprus for the purposes of the Special Contribution for Défense Law.

Persons whose domicile of origin is Cyprus, will be be considered as non-domicile in the following cases:
• If they have acquired and maintained a domicile of choice outside Cyprus and provided that they were not tax residents in Cyprus for any continuous period of at least 20 consecutive years prior to the tax year in question; or
• If they were not tax residents in Cyprus for a period of at least 20 consecutive years immediately prior to the entry into force of the non-domicile provisions (i.e. between the years 1995 and 2014 inclusive).

On the basis of the foregoing, foreigners who establish themselves as Cyprus tax residents will automatically be considered as non-domiciled persons for a maximum of 17 years and shall therefore not be subject to the Special Defence Contribution tax on interest and dividends.


KEY TAX BENEFITS FOR EXPATRIATE INDIVIDUALS
Applicable Income tax exemptions for person taking up employment in Cyprus
Any person who has relocated for employment in Cyprus, (irrespective of whether they are tax resident in Cyprus or not,) is eligible to one of the following income tax exemptions on employment income:

• 50% 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 in Cyprus, provided that the income from such employment exceeds €100,000 per annum.
The exemption of 50% will not be granted to an individual who has been
a Cypriot tax resident for at least three out of the last five tax years immediately prior to the year of commencement of employment in Cyprus or to an individual who has been a Cyprus tax resident in the tax year immediately preceding to the tax 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 is available to qualifying individuals commencing employment in Cyprus between 2012 and 2025
and is applicable for five years, commencing from the tax year following the year of employment.

Income tax exemptions applicable to income from overseas employment
The rendering of salaried services outside Cyprus, to a non-Cyprus tax resident employer, or to an overseas permanent establishment of a Cyprus tax resident employer, for more than 90 days in a tax year, is not subject to income tax.

No tax on dividend and interest income
A non-domiciled individual, irrespective of his/her tax residency status is exempt from tax on dividend and interest income. However, for Cyprus tax resident individuals (irrespective of their domicile status) such income is subject to contributions* to the GHS at the rate of 2.65%.

No tax is applicable on gains arising from the disposal of investments
No tax is applicable to gains made out of the disposal of shares, bonds and other similar financial instruments (including options and rights thereon).
However, such income (of trading nature only) is subject to contributions to the National General Health National at the rate of 2.65%.

Nil or reduced withholding tax on income received from abroad
The Republic of Cyprus is a party to more than 65 tax treaties that provide for nil or reduced withholding tax rates on dividends, interest, royalties and pensions received from abroad.

No tax on retirement gratuity and special tax regime on foreign pension income
No tax is applicable to any lump sum received as a retirement gratuity. Further, a Cyprus tax resident receiving a pension income from overseas employment, may choose to be taxed at a flat rate of 5%, on amounts exceeding €3,420 per annum.

Exemption from capital gains tax on sale of real estate
Gains arising from the disposal of real estate outside Cyprus are exempt from capital gains tax.

Estate duty, wealth tax, gift tax and inheritance tax
No estate duty, wealth tax, gift tax or inheritance tax is applicable in Cyprus.