There are two routes for foreign private individuals to become Cyprus tax residents:
- “183 day rule”
- The new “60 day rule” that has been introduced in July 2017.
The first simple rule is applying where an individual stays in Cyprus for a period or periods that aggregate to 183 days in a tax year, without any further additional conditions/criteria.
Under the second new rule, an individual will also be allowed to become a tax resident in Cyprus if they meet all of the following criteria:
- He stays in Cyprus for a period or periods that aggregate to 60 days in the tax year; and
- He does not stay in any other country for a period or periods exceeding 183 days in the same tax year; and
- He is not and will not become tax resident of any other country in the same tax year; and
- He carries out any business in Cyprus or is employed in Cyprus or is an officer (director) of a Cyprus resident company; and
- He maintains a permanent residence in Cyprus, which can be owned or rented by the individual.
It is important to note that, under the “60 days rule”, the individual will not be considered as tax resident of Cyprus if, in that year, the conducting of a business and / or employment in Cyprus and / or the holding of a directorship in Cyprus have been terminated.
For the purposes of calculating the days of stay in Cyprus please note that:
- The day of departure from Cyprus is considered as a day of residence outside Cyprus.
- The day of arrival in Cyprus is considered as a day of residence in Cyprus.
- Arrival in Cyprus and departure from Cyprus on the same day is counted as one day of residence in Cyprus.
- Departure from Cyprus and arrival in Cyprus on the same day is counted as one day of residence outside Cyprus.
Individuals who become Cyprus tax residents are subject to tax in Cyprus on their worldwide income but certain exemptions apply as incentives and benefits by Cyprus tax legislation that attract both international business entities and private individuals in Cyprus. Of particular note are:
- The non-domicile rules. Certain income, such as dividends and bank interest, is exempt from income tax but is subject to Special Defence Contribution Tax. However an individual who is a tax resident of Cyprus but is not-domiciled in Cyprus is no longer subject to the otherwise applicable Special Defence Contribution Tax despite the fact that they may be Cyprus tax residents and/or the income is derived from sources within Cyprus. Prior to the amendment a tax resident non-dom individual would pay taxes on dividend income at 17%, interest income at 30% and rental income at 3%. The above exception will apply for the first 17 years from the year that the individual becomes a tax resident of Cyprus. In order to qualify as a non-domiciled resident of Cyprus an individual must be born to a non-Cyprus domiciled father and not have been a Cyprus tax resident for at least 17 out of the last 20 years prior to the year in which such individual applies for non-dom status.
- The securities exemption. Profit from the sale of securities – which include, inter alia, shares, bonds, debentures and options thereon – is exempt from taxation in Cyprus. Also there is no capital gains tax other than on the disposal of immovable property situated in Cyprus or shares representing immovable property based in Cyprus.
- Employment income exemption for employments exercised in Cyprus. For high earning individuals (income over €100.00 per annum) moving to Cyprus, a tax exemption of 50% of gross employment income earned in Cyprus will apply for the first ten years provided that the individual was not a tax resident of Cyprus before the commencement of the employment. Moreover a tax exemption of 20% of gross employment income (up to a maximum of €8.550) earned in Cyprus by a Cyprus tax resident individual earning less than €100,000 of gross employment income per annum will apply provided that the individual was not a tax resident of Cyprus before the commencement of the employment (available up to 2020).
Please note that an individual person who is a tax resident in Cyprus will be taxed on any other worldwide income, based on the following income tax rate:
Revenue Tax rate (%):
Up to €19,500 – 0%
€19,501 – €28,000 – 20%
€28,001 – €36,300 – 25%
€36,301 – €60,000 – 30%
More than €60,000 – 35%
- No estate duty, wealth, gift or inheritance tax
- Pension income received from abroad by a tax-resident of Cyprus may be taxed either at the flat rate of 5% on the excess of €3.420,00 or at Cyprus normal scaling rates.
Please note that UK source pension income under the UK/Cyprus double tax treaty is only taxable in Cyprus and not subject to UK tax. This applies to all pension income, whether paid by the UK government, an occupational pension or a private pension fund. In most other countries, government service pensions remain taxable in the UK.
- Cyprus companies whose management and control is exercised in Cyprus are considered to be tax residents of Cyprus and they are taxed at one of the lowest corporate tax rates (12,5%) on all their income accrued or derived from all sources in Cyprus and abroad. A non-Cyprus tax resident is taxed on income accrued or derived from a business activity which is carried out through a permanent establishment in Cyprus and on Cyprus source income.
Disclaimer: Information contained in this article is of informative nature only and is prepared to give the reader a clear outline of the Cyprus tax legislation. You must not rely on the information without receiving independent personal advice based on your own circumstances. For more information, please contact us.