With the latest amendments to the Income Tax and Special Defence Contribution Laws, Cyprus is now considered to be one of the most favourable jurisdictions for personal tax residency. In addition, Cyprus does not have any other personal tax modes such as inheritance or wealth taxes.
The tax regime enhancements tie in with the various investment programmes which aim to attract foreign individuals to Cyprus and bolster the country’s economy.
Cyprus tax residency
In accordance with the provisions of the Cyprus Income Tax Law, an individual can qualify as a tax resident in Cyprus if he/she meets the tax residency criteria.
An individual who qualifies as a tax resident in Cyprus is taxed on income accruing or arising from sources both within and outside Cyprus (i.e. worldwide income).
An individual who does not qualify as a tax resident in Cyprus is taxed on income accruing or arising only from sources within Cyprus (e.g. rental income from real estate property located in Cyprus).
Cyprus tax residency criteria
Tax resident in Cyprus is an individual who:
- is present in Cyprus for a period exceeding 183 days in a tax year (i.e. 1 January to 31 December), or
- does not spend more spend more than 183 days in any other country during the tax year and is not a tax resident in any other country for that tax year and all the following conditions are met:
- he/she spends at least 60 days in Cyprus during the tax year;
- he/she pursues any “business” in Cyprus and/or works in Cyprus and/or is a director in a company tax resident in Cyprus at any time during the tax year, provided that such “business” is not terminated during the year;
- he/she maintains a permanent residence in Cyprus, which can be either owned or rented.
Tax bands and rates
A Cyprus tax resident is subject to tax on his/her taxable income based on the below tax bands and rates:
|0 – 19,500||0||Nil|
|19,501 – 28,000||20||1,700|
|28,001 – 36,300||25||3,775|
|36,301 – 60,000||30||10,885|
Tax exemptions and deductions
The Income Tax Law provides for numerous exemptions/deductions from taxation which are aimed to attract new taxpayers to Cyprus. Of note are the following, amongst others:
- Dividend income is exempt from Income Tax.
- Interest income is exempt from Income Tax.
- Profits from the sale of securities are exempt from Income Tax.
- New taxpayers can earn a discount of 20% on their annual taxable income up to the year 2020 or if they earn remuneration of at least EUR 100,000 from a Cyprus tax resident company, then 50% of their remuneration are exempt from tax for 10 years.
- Any remuneration from salaried services rendered outside Cyprus for more than 90 days in a tax year is exempt from Cyprus Income Tax.
- Lump sum life insurance repayment are exempt from Income Tax.
- A 20% reduction is offered on any rental income received.
Special Contribution for Defence
Cyprus tax resident individuals are also subject to Special Contribution for Defence (“SCD”) if they qualify as Cyprus domiciled tax residents.
An individual is domiciled in Cyprus for the purposes of SCD if:
- he/she has a domicile of origin in Cyprus as per the Wills and Succession Law (subject to conditions), or
- if he/she has been a tax resident in Cyprus for at least 17 out of the 20 tax years prior to the tax year of assessment.
As a result, an individual who does not have a domicile of origin in Cyprus can qualify as a non-domiciled tax resident for at least 17 years from the year he/she qualifies as a Cyprus tax resident, hence being exempted from SDC for the next 17 years.
SCD is imposed (on an accruals basis) on dividend, interest and rental income earned by a Cyprus domiciled tax resident individual.
SCD is imposed based on the following rates:
|3||Austria (new agreement)||19||Georgia||35||Lithuania||51||Singapore|
|4||Azerbaijan***||20||Germany (new agreement)||36||Luxembourg||52||Slovakia**|
|5||Barbados||21||Greece||37||Malta||53||Slovenia (new agreement)|
|6||Belarus||22||Hungary||38||Mauritius (new protocol)||54||South Africa (amending protocol)|
|8||Bosnia*||24||India (new agreement)||40||Montenegro*||56||Sweden|
|9||Bulgaria||25||Iran||41||Norway (new agreement)||57||Swiss Confederation|
|10||Canada||26||Ireland||42||Poland (new agreement)||58||Syria|
|11||China||27||Italy (new protocol)||43||Portugal||59||Thailand|
|12||Czech Republic (new agreement)||28||Jersey||44||Qatar||60||The States of Guernsey|
|13||Denmark (new agreement)||29||Kazakhstan||45||Romania||61||Ukraine*** (new agreement)(amending protocol)|
|14||Egypt||30||Kingdom of Bahrain||46||Russia (amending protocol)||62||United Arab Emirates|
|15||Estonia||31||Kuwait (new agreement)||47||San Marino (amending protocol)||63||United Kingdom (amending protocol) (new agreement)|
The very attractive Cyprus personal tax regime allows individuals to relocate their personal tax residency to Cyprus and enjoy, for at least 17 years, a full exemption from tax on their worldwide dividend and interest income, and furthermore enjoy a permanent exemption from tax on any gains generated from the disposal of securities, subject to conditions.
We will be more than happy to assist EU and non-EU citizens in obtaining the necessary immigration residence permits in Cyprus as this could be required for registering an individual with the Cyprus Tax Department. With regards to the procedure and requirements for registering an EU citizen with the Cyprus Civil Registry and Migration Department, please refer to the following article ‘Cypriot Residency Permit- Yellow Slip’.Cypriot Residency Permit- Yellow Slip’.