Main Features:

  • Taxation is based on Residency status;
  • 12,5% corporate tax on corporate trading profits;
  • Notional Interest Deduction (NID) available for new capital introduced;
  • Intangible Property (IP) Regime in line with OECD’s “nexus” principle;
  • Corporate tax on sale of securities: 100% exemption;
  • No withholding tax on outgoing payments (dividends- interest-royalties);
  • Dividend income is exempt (subject to relaxed conditions);
  • Applicability of all EU directives;

Foreign exchange differences are tax neutral; Group relief availability (for 75% holdings);

  • Tax exempt re-organizations;
  • Advanced tax ruling practice offers safety and predictability for investments;
  • Attractive and constantly expanding Double Tax Treaty network.

TAX RULES FOR INDIVIDUALS

The 183 days rule

Cyprus has adopted a residency-based system of taxation, whereby physical presence in Cyprus exceeding 183 days in a tax year (1st January to 31st December) will constitute tax residency for individuals. Therefore, if an individual is physically present in Cyprus for more than 183 days in a tax year, s/he will be considered a tax resident of Cyprus in that tax year. Consequently, if the individual is physically present in Cyprus for less than 183 days in a tax year, s/he will be considered to be a non-Cyprus tax resident in that tax year.

The 60 days rule

As of 1st January 2017, the above tax residency rules have been amended to also provide that, an individual who does not stay in any other country, for one or more periods exceeding in aggregate 183 days in the same tax year and is not tax resident in any other country for the same year, is deemed as a resident in Cyprus in that tax year, if all of the following conditions are met:

  • the individual stays in Cyprus for at least 60 days in the tax year,
  • exercises a business and/or is employed in Cyprus and/or holds an office with a Cyprus tax resident company at any time during the tax year,
  • maintains (by owning or leasing) a permanent home in Cyprus.

The law is further amended to clarify that an individual that cumulatively meets all the above conditions shall not be treated as a Cyprus tax resident in the tax year, if during that year the exercise of any kind of business in Cyprus and/or employment in Cyprus and/or holding of an office with a tax resident person in Cyprus, is terminated.

Days spent in Cyprus should be calculated as follows:

  1. The day of departure from the Republic is deemed to be a day outside of the Republic;
  2. The day of arrival in the Republic is deemed to be a day in the Republic;
  3. The arrival in the Republic and the departure from the Republic in the same day is deemed to be a day in the Republic;
  4. The departure from the Republic and the arrival in the Republic in the same day is deemed to be a day outside the Republic;

NON-DOMICILED RULES FOR INDIVIDUALS

According to the provisions of the Cyprus tax laws, an individual who is a tax resident of Cyprus under the provisions of the IncomeTax Law (either under the 183 days rule or the 60 days rule) but is “non-domiciled” in the Republic of Cyprus, will be exempt from Special Defence Contribution (SDC).

As per the SDC law, dividends and interest income earned by individuals who are tax residents and domiciled in Cyprus, are subject to tax at the rate of 17% and 30% respectively, regardless of the source of the income (i.e. from Cyprus or from abroad). Rental income is also subject to tax at the rate of 3% on 75% of the gross amount.Therefore, tax residents but non-domiciled individuals will enjoy dividend, interest and rental income free from SDC tax in Cyprus.

The new provisions define domicile in accordance with the rules of the Wills and Succession Law:

  • A domicile of origin (i.e. the domicile received by an individual at birth); and,
  • A domicile of choice (i.e. the domicile acquired by an individual by establishing a home with the intention of a permanent or indefinite stay).

A person who has a domicile of origin in Cyprus will be treated as “domiciled in Cyprus” for SCD purposes with the exception of:

  • An individual who has obtained and maintained a domicile of choice outside Cyprus under the provisions of the Wills and Succession Law, provided that this individual was not a Cyprus tax resident for a period of at least 20 consecutive years prior to the tax year in question; or
  • An individual who was not a Cyprus tax resident for a period of at least 20 consecutive years immediately prior to the entry into force of the introduced provisions (i.e. prior to 16/07/2015).

Irrespective of his/her domicile of origin, an individual who remains a tax resident of Cyprus for a period of at least 17 years out of the last 20 years prior to the tax year in question, shall be deemed as domiciled in Cyprus for SDC purposes.

CONCESSIONS AVAILABLE FOR EXPATRIATES

Exemptions regarding employment income 

Individuals who were based overseas and who were not Cyprus tax-residents before the commencement of their employment in Cyprus, may be entitled to one (but not both simultaneously) of the following exemptions:

The 50% exemption rule

  • Individuals who take up employment in Cyprus with an annual income in excess of €100.000 will be eligible for an exemption from taxation of 50% of their income for a period of 10 years, commencing from the year of employment.

Note: The exemption is not given to an employee who was a tax resident in any three out of the five years preceding the year of employment and to an employee who was resident in the year preceding the year of commencement of employment.

The 20% exemption rule

  • Individuals who take up employment in Cyprus and were not tax resident in Cyprus prior to commencing such employment, will be eligible for an exemption from taxation of 20% of their income or €8.550 (whichever is lower) from any employment which is exercised in Cyprus.

Note: This exemption applies for a period of five

(5) years commencing from 1st January of the year following the year of commencement of such employment and notwithstanding this, it is applied up to and including the year 2020.

Overseas Pensions

  • Overseas pensions are exempt from tax up to €3.420 and taxed at 5% thereafter.The taxpayer may opt to be taxed in the normal way, where this special mode of taxation of income results to a higher tax liability (this selection can be made from year to year).

OTHER CONCESSIONS

  • 100% exemption on remuneration for salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus resident employer.
  • 100% exemption on lump sum repayments from life insurance schemes or from approved provident funds.
  • No inheritance and gift taxes.
  • No wealth taxes.
  • No immovable property taxes.
  • Capital gains from the sale of immovable property situated outside Cyprus is exempt from tax.
  • Capital gains tax is only imposed on the sale of immovable property situated in Cyprus as well as on the sale of shares directly or indirectly held in companies (other than listed shares) in which the underlying asset is immovable property situated in Cyprus.