Obligation of Income Tax
A Cyprus tax resident is subject to tax on income generated both within and outside Cyprus. Residents are taxed on a progressive rate based on income brackets, with certain types of income, such as dividends and interest, often exempt. Non-residents, however, are taxed only on income from sources within Cyprus.
Criteria for Cyprus Tax Residency
Cyprus tax residency relies on residency duration, with two main rules:
A. The 183-Day Rule
Individuals who spend more than 183 days in Cyprus during a tax year (January 1 to December 31) qualify as tax residents. Those in Cyprus for fewer days are considered non-residents for tax purposes in that year.
B. The 60-Day Rule
Since January 1, 2017, an individual may also become a Cyprus tax resident under the 60-day rule if all the following conditions are met within the tax year:
– The individual does not reside in any other country for over 183 days in total.
– The individual is not considered a tax resident of any other country.
– The individual spends at least 60 days in Cyprus.
– The individual has a permanent home in Cyprus (owned or rented property).
– The individual conducts business, is employed, or holds a directorship in a Cyprus-based company.
If employment or business ties in Cyprus end within the year, the individual will not be considered a Cyprus tax resident.
Counting Days in Cyprus
– Arrival days are considered days in Cyprus, while departure days are considered outside.
– Same-day arrival and departure count as a day in Cyprus, while same-day departure and return count as a day outside.
Non-Domiciled Individuals Definition
Cyprus law recognizes two types of domiciles:
1. Domicile of Origin: Inherited at birth.
2. Domicile of Choice: Established by living with the intent to make Cyprus a permanent residence.
Non-domiciled individuals in Cyprus enjoy favorable tax benefits, such as exemptions on dividend and foreign income. However, individuals who have been Cyprus tax residents for 17 of the past 20 years are deemed domiciled in Cyprus for tax purposes.
Those with a domicile of origin in Cyprus can still be considered non-domiciled if:
– They establish a domicile of choice outside Cyprus and have not been a tax resident for at least 20 consecutive years before the relevant tax year.
– They were not Cyprus tax residents for at least 20 consecutive years before July 16, 2015, when non-domicile provisions came into effect.
Tax Advantages for Non-Domiciled Persons
Under Cyprus’s Special Defence Contribution (SDC) Law, Cyprus residents pay SDC tax on dividends and interest at rates of 17% and 30%, respectively, regardless of the income source. This SDC tax applies only to Cypriot-domiciled individuals.
Non-domiciled residents are fully exempt from SDC on dividends and interest (except for minimal contributions to the National Health System, GeSY). Since March 1, 2019, dividend income has been subject to GeSY at a rate of 1.7%, rising to 2.65% after February 29, 2020, capped at €180,000 annually.
Additional Tax Benefits for Cyprus Tax Residents
All Cyprus tax residents enjoy a range of tax benefits:
– Non-domiciled residents are exempt from SDC on dividends and interest.
– Gains from the sale of shares and qualifying titles are tax-exempt, provided the assets do not include Cyprus-based property.
– Tax-exempt income up to €19,500, with higher incomes taxed progressively from 20% to 35%.
– A 50% tax exemption for employment income over €100,000 earned by non-residents for a 10-year period.
– A 20% exemption on employment income below €100,000, capped at €8,550, for employment starting between 2012 and 2025, applicable for five years.
– Full exemption for employment services rendered outside Cyprus for over 90 days to non-resident employers or establishments.
– No capital gains tax on Cyprus property acquired before December 31, 2016.
– Pensions from previous foreign employment are taxed at 5% for amounts over €3,420 annually.
– No inheritance, wealth, or gift taxes apply in Cyprus.
– Beneficiaries of trusts are tax-exempt on income from interest or dividends received through the trust.
**Note: This guide is for general informational purposes and should not replace professional advice.