Learn about domicile and non-domicile status, and how to optimize your taxes in Cyprus. Plus, get insights into personal income tax rates and retirement taxation options. Cyprus awaits with its unique blend of beauty and tax advantages!
Cyprus combines rich cultural, historic, and archeological heritage with amazing natural beauties, amicability of the local people, and fantastic cuisine. The island has been a magnificent place for work and relaxation for millennia.
Today, Cyprus has one more attractive offer to make to immigrants, namely, a beneficial taxation system.
The Cypriot legal system is based on the English Law; it is well structured and easy to understand. Low tax rates allow optimizing your tax burden in a legal way. Membership of Cyprus in the European Union gives you access to all the benefits associated with this organization.
Basic facts about the taxation system in Cyprus
- Cyprus has signed over 60 treaties on double taxation avoidance with other countries.
- The income tax and the social security contributions are the lowest in the EU.
- The flat corporate tax rate of 12.5% is among the lowest corporate tax rates in the world.
- Dividend tax – 0%.
- Tax payable on the sale of securities (shares, bonds, etc.) – 0%.
- Wealth tax – 0%.
- Inheritance tax – 0%.
- 80% of the profit generated by selling intellectual property is tax-free in Cyprus.
The tax policies in Cyprus are beneficial indeed. What affects the amount of tax money that you have to pay in Cyprus is the status of ‘tax residence’ and the status of ‘domicile’.
If you are to be able to make use of all the tax benefits available in Cyprus, you have to become a tax resident of the country of course.
Two rules can apply to those seeking to become tax residents of the country the ‘183 days rule’ and the ’60 days rule’. How are these rules applied in practice? Who is eligible to become a tax resident of the country after only 60 days?
The 183 days rule
The rule is quite simple: if you live in Cyprus for more than 183 days per year (that is, if you spend more than half of the calendar year there), you become a tax resident of Cyprus.
The 60 days rule
On July 14, 2017, the Parliament of Cyprus amended the country’s tax law and introduced a ’60 days’ rule. Since that date, a natural person can become a tax resident of Cyprus after living in the country for 60 days only on the condition that he or she is a tax resident of no other country.
There are two types of tax residence in Cyprus: domicile and non-domicile.
In accordance with the Cypriot legislation, domicile can be acquired by the right of birth or it can be ‘earned’. If the person has been born on Cyprus, they have the domicile status automatically. Alternatively, the person can acquire the domicile status if they have lived in Cyprus for 17 years within a 20-year period. This is how you can ‘earn’ the domicile status in Cyprus.
Those having the domicile status have to pay a ‘defense tax’: their dividends, interests, and rent incomes are taxed.
What are the advantages of non-domicile status?
The non-domicile status is the status of a person who is a tax resident of Cyprus and pays an income tax there but who does not reside there permanently and does not intend to live in Cyprus until the end of his/ her life.
You have to apply for becoming a non-domiciled tax resident of Cyprus, which requires going through certain procedures and obtaining some documents. However, the status will make you exempt from some taxes.
Non-domiciled tax residents are exempted from taxes on foreign income. This rule applies only to newcomers. Cypriots born with the domicile status are not eligible to apply for changing it into the non-domicile status.
The non-domicile status exempts its holder from the following taxes:
- Taxes on interests earned in Cyprus or outside;
- Taxes on dividends earned in Cyprus or outside;
- Taxes on incomes derived from sale of corporate ownership rights and securities.
Taxable income in Cyprus
Natural person’s global income is taxed in Cyprus regardless of his or her status – domicile or non-domicile. However, tax exemptions and tax deductions are available in large quantities. If the person is not a tax resident of Cyprus but he/ she lives in the country, only the income made locally is taxed. The dividends and interests that this person receives are also tax-free no matter where they come from.
Personal taxes in Cyprus
Main personal taxes payable in Cyprus include the following ones:
- Personal income tax;
- Defense tax (a special contribution for military purposes);
- Social security contributions payable to the state social security and healthcare funds;
- Capital gains tax;
- Consumption tax (VAT);
- Commission for property rights
Personal income tax
Fiscal residents of Cyprus pay taxes on the income made both at home and abroad. The tax rates are as follows:
- from 0 to €19,500 per year — 0%;
- from €19,500 to €28,000 per year — 20%;
- from €28,000 to €36,300 per year — 25%;
- from €36,300 to €60,000 per year — 30%;
- above €60,000 per year — 35%.
The following types of income are tax-exempt:
- 20% (maximum € 8,550) of the salary or another sort of remuneration to a foreign person working in Cyprus and having tax residence in the country. The tax exemption is in effect for three years beginning January 1 of the year subsequent to the year when the job started.
- All income from interests and dividends;
- Income from sale of securities;
- Remunerations obtained by non-residents of Cyprus abroad and for residents of Cyprus working for foreign subsidiaries of Cypriot companies on the condition that the person spends more than 90 days per year outside Cyprus;
- One-time retirement benefits, pension provisions, burial allowances, and insurance benefits obtained in case of death or injury.
Items deductible from the overall amount of income:
- Contributions to emergency funds;
- Contributions to trade unions and professional organizations;
- Donations to charitable organizations specified by the Government of Cyprus;
- Rental property maintenance costs (maximum 20% of the income from rent).
Taxes for retirees in Cyprus
A tax resident of Cyprus can choose one of the following taxation schemes:
- The first € 3.420 is tax free and the rest of the pension income is taxed at 5%;
- All the pension income is added to other incomes and it is taxed at standard rates. This scheme is beneficial for those whose income is low and does not exceed € 19,500 per year.
Conclusion
Cyprus offers a compelling blend of culture, history, and natural beauty, alongside an attractive taxation system. With low tax rates and EU membership, it’s an appealing destination for immigrants. Tax residency options include the ‘183 days rule’ and the ’60 days rule,’ impacting tax benefits. Personal income tax rates vary, with exemptions for specific income sources, while retirees in Cyprus have taxation options based on pension income. Explore Cyprus for its rich heritage and tax advantages!