Cyprus is becoming an increasingly attractive option for companies and individuals to consider relocating to. Attractive tax incentives exist and Cyprus offers a good corporate and residential location, enviable weather and a sound infrastructure.
On 9 July 2015 the Cyprus House of Representatives approved new tax laws which took effect on 16 July 2015. These changes offer significant additional benefits to high net worth individuals and to companies relocating to Cyprus. Further tax exemptions are under discussion and are likely to be introduced in the near future.
The Main Benefits
The main benefits of the new legislation include:
- Special Defence Tax exemption for Cypriot non-domiciled tax residents
- Extension of the personal income tax reduction on the salaries of new residents
- Capital gains tax exemption: on newly acquired Cyprus immoveable property
- Reduction in land registry fees
- Corporation tax: notional interest reduction
This article also considers the tax benefits that the existing and new legislation provide for non Cypriot domiciled individuals. These new provisions make Cyprus an even more attractive jurisdiction to consider moving to.
Benefits Enjoyed by Tax Residents of Cyprus who are not Domiciled in Cyprus
As a result of existing tax legislation and the exemption from Cyprus’ Special Contribution to Defence Tax (SDC) introduced in the recent legislation, non-domicilaries benefit from a zero rate of tax on the following sources of income:
- Capital gains (other than on the sale of immoveable property in Cyprus – subject to the recently introduced partial exemption on newly acquired property)
- Capital sums received from payments made by pension, provident and insurance funds
These zero tax benefits are enjoyed even if the income has a Cyprus source and is remitted to Cyprus.
- In addition there are no wealth or inheritance taxes in Cyprus.
Other Beneficial Features of the Cyprus Tax System for Individuals
Income Tax Reduction for New Personal Income Tax Payers
Individuals who were not previously resident in Cyprus and take up residency in Cyprus for work purposes are entitled to the following reduction, as long as their annual salary is greater than €100,000:
- 50% of the salary earned in Cyprus is exempt from income tax for a period of five years starting from the first year of employment.
New law will extend the period from which this reduction can be enjoyed from five years to ten years.
- If the individual’s annual salary earned in Cyprus is less than €100,000, 20% of the salary or €8,550, whichever is the lower, is exempt from tax for three years.
It is anticipated that the above exemption period will be extended from three to five years.
Standard income tax rates in Cyprus are as follows:
- €0 to €19,500 – 0%
- €19,501to €28,000 - 20%
- €28,001to €36,300 - 25%
- €36,301to €60,000 - 30%
- Greater than €60,000 - 35%
Low Tax Rate: Foreign Pensions
Individuals receiving a pension derived from services provided abroad can elect to pay a separate income tax rate of 5% on pension income in excess of €3,420.
Capital Gains Tax Exemption: Cypriot Immoveable Property
Capital gains tax, at a rate of 20%, is only imposed on gains from the disposal of immoveable property in Cyprus. Capital gains from the disposal of Cypriot immovable property acquired between 16 July 2015 and 31 December 2016 are exempt from capital gains tax.
This applies to all individuals: residents and non-residents of Cyprus who acquire property in Cyprus before 31 December 2016.
A zero rate of capital gains tax applies to all other assets in Cyprus.
Reduced Land Registry Transfer Fees
A 50% reduction in the land transfer fee relating to the disposal of Cyprus property has been introduced, and is effective from 16 July 2015 to 31 December 2016.
Previously land transfer fees were:
- 3% for a property with a market value up to €85,000
- 5% for a property with a market value between €85,001 and €170,000
- 8% for a property with a market value greater than €170,000
The Definition of Residence and Non-Domicile in Cyprus for SDC Purposes
An individual is tax resident in Cyprus if he/she spends more than 183 days in any one calendar year in Cyprus.
The term “domiciled in Cyprus” is defined in law as an individual who has a Cypriot domicile of origin in accordance with the Wills and Succession Law or has obtained a domicile of choice outside of Cyprus, provided that the individual has not been tax resident in Cyprus for at least 20 years prior to the relevant tax year.
Not withstanding the above, any individual who has spent 17 of the last 20 years, prior to the relevant tax year, as a Cyprus tax resident will be considered domiciled in Cyprus.
Previously income received by all Cyprus tax residents from dividends, rent and interest was subject to the Special Contribution to Defence Tax (SDC). This was a major disadvantage for high net worth individuals relocating and becoming tax resident in Cyprus.
The new non-domicile tax status exempts all non-Cypriot domiciled individuals from SDC, irrespective of where the income is generated from or remitted to. As a result non domiciled individuals do not pay tax on dividends, rent or interest.
The new non-domicile status in Cyprus offers a number of additional benefits to high net worth individuals who are not domiciled in Cyprus. The new regime offers additional financial incentives for individuals to consider Cyprus as an attractive destination for residence.
For further information about the attractive tax regime in Cyprus please contact Robert Homem at the Dixcart office in Cyprus: firstname.lastname@example.org.