Maybe it’s time for you to head down to Cyprus permanently? There are many benefits in doing so, one being the Cyprus tax rates. Income tax in Cyprus works very differently in the sense that, both EU and non-EU citizens can enjoy tax-free living in Cyprus simply by qualifying as a tax-resident.
For the first 17 years of tax residency, individuals are categorised as ‘Non-Domiciled’ (Non-Dom) in Cyprus. Being a Non-Dom allows a person to enjoy the following completely tax-free:
- Bank Deposit Interest
- Most forms of Trust income
- Profit from the sale of shares (provided the underlying assets are not immovable property located in Cyprus)
- Capital gains on the sale of foreign property
- First €19,500 of Cyprus employment income
- 50% exemption from Cyprus employment income where the employment commenced prior to becoming a tax-resident.
- 100% exemption from employment income outside of Cyprus provided at least 90 days of the employment are carried on outside Cyprus
- Foreign pensions taxed at a flat rate of 5%
- Tax-free life insurance lump sum payments
Cyprus Tax Rates: Qualifying for Tax Residency
The 183-day rule:
An individual is a tax resident of Cyprus if he/she is physically present in Cyprus for a period exceeding 183 days during a tax year (from 1st January to the 31st December).
The 60-day rule:
From 1 January 2017, an additional test to measure an individual’s income tax in Cyprus was introduced under which they can still qualify as tax residents even if they have spent less than 183 days on the island, provided that all the following conditions are met:
- They do not spend more than 183 days in any other country
- They are not tax residents of any other country
- They spend at least 60 days in Cyprus
- They maintain a permanent home in Cyprus (owned or rented)
- They exercise a business and/or are employed by a Cyprus company and/or hold an office in Cyprus with a tax resident Cyprus company for the same calendar year.
The Meaning of Domicile
There are two factors that dictate an individual’s domicile status:
- Domicile of Origin – is acquired at birth. An individual’s domicile of origin usually follows his/her father’s domicile. If therefore, as an example, a person’s father was born in and remained in the UK, that person’s domicile of origin will be that of the UK.
- Domicile of Choice – is acquired by establishing a physical presence in a particular place and by demonstrating sufficient intention to make it the place of permanent residence. An individual’s domicile of origin can be changed through ‘choice’. However, such ‘choice’ must be reinforced through evidence of that person’s intention to leave their domicile of origin. In order to demonstrate the requisite intention, an individual will usually have to live in the chosen location for a period of time, work there, move his/her family there and demonstrate an intention to permanently reside there.
Cyprus tax rates differ in that, individuals who have been tax residents in Cyprus for at least 17 out of the last 20 years, will be ‘deemed’ to be domiciled in Cyprus for tax purposes. After this time, the special tax treatment for Non-Doms will be lost and Cyprus’ normal tax regime will apply.
Maximising Cyprus Tax Rates Benefits by Planning Your Move
Cyprus tax rate benefits offered to Non-Doms provide many opportunities for tax planning. As is almost always the case, the move effective form of planning is proactive, i.e. before moving to the island.
Some individuals will decide to move for retirement purposes, others will move their business affairs to the island, whilst others will look to establish a new business and all of this will affect your income tax in Cyprus. Whatever the motive, advice should be sought so as to ensure the correct structure is established in order to maximize the tax benefits on offer.
Furthermore, each person who considers moving his/her personal tax residency to another country separately ensure that, depending on the laws and practices of his/her current tax jurisdiction, he/she shall stop being a tax resident in that other country.
How Can EQ:IQ Inform You About Cyprus Tax Rates?
At EQ:IQ, we provide tax advisory services for businesses and individuals who want to adhere to the law and expand their business interests in the most efficient manner possible. If you’re looking to move because of the Cyprus tax rates, we’ve got you covered.
Our comprehensive services cover all areas of taxation, informed by our relevant industry knowledge and experience. If you want to find out more about any of our other services offered, make an appointment and a member of our friendly, professional team will get back to you!