Cyprus is an attractive option for the relocation of both companies and individuals.

This island offers a warm climate, good infrastructure, convenient geographic location, membership of the EU, tax advantages for companies and incentives for individuals through the Cyprus non-dom regime.

Background

The Cyprus House of Representatives approved new tax laws on 9 July 2015, which took effect on 16 July 2015. These changes provide significant benefits to high-net-worth individuals and to companies, relocating to Cyprus.

The Main Benefits

The mail benefits of the legislation include:

• Special Defence Tax exemption for Cypriot non domiciled tax residents
• Extension of the personal income tax reduction relating to the salaries of new residents
• Corporation tax: notional interest reduction

Zero Tax Benefits Enjoyed by Tax Residents of Cyprus Who Are Not Domiciled in Cyprus

As a result of previous tax legislation AND the exemption from the Cyprus Special Contribution for Defence Tax (“SDC”) introduced in July 2015, non-domiciliaries benefit from a zero rate of tax on the following sources of income:

• Interest
• Dividends
• Capital gains (other than on the sale of immoveable property in Cyprus)
• Capital sums received from pension, provident and insurance funds

Zero Tax Benefits Even if Income is Remitted to Cyprus

The zero tax benefits detailed above are enjoyed even if the income has a Cyprus source and it is remitted to Cyprus.

In addition there are NO wealth and NO inheritance taxes in Cyprus.

Other Beneficial Features of the Cyprus Tax System for Individuals

Income Tax Reduction for New Residents in Cyprus

Individuals who were not previously resident in Cyprus, take up residence in Cyprus for work purposes, and earn over €55,000 per annum, are entitled to the following tax benefit:

• 50% of employment income earned in Cyprus is exempt from income tax for a period of 17 years.

Cyprus’ standard income tax rates are:

• €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

The first €3,420 of a pension from employment outside Cyprus is tax free, and individuals can elect to pay only 5% income tax on pension income in excess of this amount.

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. Before July 2015, income received by Cyprus tax residents from dividends, rent and interest, was subject to the Special Contribution for Defence Tax (SDC). This was a significant disadvantage for high-net-worth individuals as their worldwide passive income, especially dividends, suffered a high level of taxation in Cyprus.

This is why the introduction of the “non-domicile” tax status has been so important:

• The law of July 2015 specifies that tax resident individuals who are non-Cyprus domiciled are completely exempt from SDC irrespective of where their income is generated or remitted to.

The main source of income for many HNWIs is dividends. Cyprus is now particularly attractive as dividend income is exempt from income tax and non-domiciled individuals are also exempt from SDC.

The Definition of Domicile 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.

In any event, an individual who has spent 17 of the past 20 years, prior to the relevant tax year, as a Cyprus tax resident will be considered domiciled in Cyprus.

Summary

Non-domicile status in Cyprus offers a number of benefits to high-net-worth individuals who are not domiciled in Cyprus. The regime introduced in July 2015 offers additional financial incentives for individuals to consider Cyprus as an attractive destination for residence.

Additional Information

For further information about the attractive tax regime for individuals in Cyprus  please contact Robert Homem at the Dixcart office in Cyprus: advice.cyprus@dixcart.com.