There are numerous incentives for expatriates and high-net-worth individuals who wish to relocate to Cyprus.
As expectations for international taxation continue to evolve, businesses are paying close attention to the countries they operate in and why. They’re also focusing on establishing economic substance, which is an important factor in safeguarding their interests.
Cyprus’ strategic location, full EU membership, robust legal system, the competitive corporate income tax rate of 12.5%, and educated workforce make it an ideal country to start a business in.
Additional to the incentives mentioned above, Cyprus offers several tax benefits that are specifically tailored to multinational companies that relocate their key staff members. These benefits also attract high-net-worth individuals who want to call Cyprus home.
Cyprus has a favorable tax regime. Below, we’ll explain the key features of the Personal Tax System and some of the benefits of moving to Cyprus.
The main types of taxes that a natural person may be charged in Cyprus depending on his/her tax residency and domicile status are:
- Income Tax
- Special Defense Contribution (SDC) on dividend, interest, and rental income
- Capital Gains Tax on Cypriot real estate
Cypriot tax residents, regardless of their domicile status, although they pay income tax on their worldwide income certain tax exemptions and allowances are available that mitigate the tax liability.
Non-domiciled individuals who are tax residents of Cyprus are exempt from paying taxes on interest and dividends.
All non-Cypriot tax residents are exempt from income taxes on dividend or interest income and only income earned within Cyprus is subject to taxation.
Taxable income up to €19,500 is exempt from income taxes. Any taxable income over this amount is subject to progressive income tax rates ranging from 20% to 35%. The highest tax rate applies to any income over €60,000.
Basic social insurance and other contributions
Employees are subject to social insurance contributions of 8.3% percent and employers have to pay 10%. Employers additionally have to pay a 2% Social Cohesion Contribution, which is calculated using employees’ gross income. There is an annual income ceiling of €57,408.
Some expatriates who come to Cyprus and get employed here may be exempt from the Cyprus social insurance scheme for a certain period.
Employees and employers also contribute to the General Healthcare System (GHS) at the rate of 2.65%.
To be considered a tax resident of Cyprus, someone needs to spend more than 183 days in the country during a given tax year.
He/she may also be considered a Cypriot tax resident if he/she spends less than 183 days or more during the same tax year if he/she satisfies all of these criteria within that same timeframe:
- does not spend more than 183 days in any other country.
- is not a tax resident of any other country;
- stays in Cyprus for at least 60 days;
- has a permanent home that is owned or rented;
- owns a business in Cyprus, works in Cyprus, or holds an office with a Cyprus tax resident person (legal or natural).
If an individual ceases to be employed or holds a position, he/she will no longer be considered a Cyprus tax resident.
Key Tax Benefits to Expatriate Individuals.
Income tax exemptions for taking up employment in Cyprus
Expatriates to Cyprus are eligible for one of the following income tax exemptions when it comes to employment income:
- 50% of the remuneration from any employment exercised in Cyprus by an individual who was a resident outside the country before starting his or her job in Cyprus. The exemption applies for ten years starting from year 1 as long as the person earns more than 100,000 Euros per year.
The 50% exemption would not be granted to an individual who has had a Cypriot tax residency in the last three out of five years or an individual that has had a Cypriot tax residency in the year prior to when he/she starts working.
- an exemption for 20% of the remuneration or €8,550 (whichever is the lower) from any employment in Cyprus by an employee who was a resident outside of Cyprus before starting to work in Cyprus. The benefit will be available to qualifying individuals who start working in Cyprus within the period 2012-2025.
This benefit will be available for five years, beginning in the tax year after the year of employment.
Tax exemptions for overseas employment
Employee services rendered outside Cyprus, to a non-Cyprus tax resident, or to a permanent establishment outside Cyprus of a Cyprus tax resident employer, for a period that exceeds 90 days in a calendar year are not subject to taxation in Cyprus.
A person’s domicile is their father’s domicile at birth, or the person may choose their own domicile. An individual who was born to a non-Cypriot domiciled father is considered a non-domiciled person in Cyprus.
However, an individual who is not a domiciled person may be deemed as having his/her domicile in Cyprus if he/she has been a tax resident of Cyprus for 17 out of the last 20 years prior to the relevant tax year. Also, an individual who was born to a Cypriot-domiciled father may qualify as being non-domiciled when certain conditions are met.
No tax on dividend and interest income
Non-domiciled individuals can enjoy a tax break when it comes to dividend and interest income.
For Cyprus tax resident individuals (irrespective of domicile status), income from such services is subject to contributions* to the GHS at the rate of 2.65%.
Gains from selling investments are not subject to taxes
Gains from the sale of shares, bonds, and similar financial instruments are exempt from tax.
It may be subject to contributions* to the GHS at a rate of 2.65%, should this be from trading only income (i.e. an investment that generates profits).
There is no/reduced withholding tax on income received from abroad
Cyprus has tax treaties with many other countries (more than 65), which provide for nil or reduced withholding tax rates on dividends, interest, royalties, and pensions received from abroad.
No Tax On Retirement Gratuity & Special Tax Regime On Foreign Pension Income
Lump sums of money when received as a retirement gratuity are tax-exempt, and tax residents of Cyprus who receive pension income from services that have been provided abroad may choose to be taxed at a flat rate of 5% on the amount exceeding €3,420 per year.
Capital Gains Tax(CGT) exemptions on the sale of real estate.
Gains from the disposal of real estate situated outside Cyprus are not subject to CGT.
Estate duty, wealth tax, gift tax, and inheritance tax
There are no estate, wealth, gift, or inheritance taxes in Cyprus.