Author: Katrien de Poorter

Background

On the 31 January 2020, the UK withdrew from the EU and the implementation of the Withdrawal Agreement, which is legally binding for all Member States, was applied on 1 February 2020. The Withdrawal Agreement allows a transition period from 1 February 2020 until 31 December 2020. 

Status for UK Citizens in Cyprus or Wishing to Move to Cyprus

The implementation of the Withdrawal Agreement means that:

1. UK nationals and their family members who, have been continuously resident in Cyprus for five years, by 31 December 2020, will be eligible for permanent residence.

UK nationals and their family members, who are covered by the Withdrawal Agreement (UK nationals and their family members who have already exercised, or will exercise their free movement rights in Cyprus before 1 January 2021), will be able to continue living in Cyprus with the same access to work, study, benefits and public services that they have enjoyed up to the end of 2020, subject to the specific provisions provided for in the Withdrawal Agreement.

• UK nationals and their family members that are already residing in Cyprus, or who arrive by 31 December 2020, but will not have been continuously resident in Cyprus for five years, will be eligible for temporary residence. This will enable them to stay in Cyprus for five years, and then they will be entitled to apply for permanent residence.

• UK nationals who want to relocate to Cyprus after the 31 December 2020, the end of the transition period and whose rights do not fall within the scope of the Withdrawal Agreement, will need to meet Cyprus immigration rules for third country nationals.

Documentation and Procedures

UK nationals and their family members will not need to replace their pre-existing residence documents: MEU1, MEU2, MEU3, in order to obtain the new residence document that will be issued from 1 January 2021. After the transition period, UK nationals and their family members who are covered by the Withdrawal Agreement, will have the right to receive, if they choose to, a new residence document which will include a statement that it has been issued in accordance with the Withdrawal Agreement.

Residence applications which are submitted after 31 December 2020 by UK nationals and their family members, who are covered by the Withdrawal Agreement (meaning that the applicant has already exercised or will exercise their free movement rights in Cyprus before 1 January 2021), will be issued with forms: UK1, UK2 or UK3.

Applications must be submitted to the Civil Registry and Migration Department of Nicosia, or to the District Unit of the Aliens and Immigration Service of the Police, depending on the area (province, district) where the applicant decides to have his/her place of residence.

Other Countries in the EU

Arrangements regarding the status of UK citizens living in EU countries, varies on a country by country basis. For countries other than Cyprus, please seek professional advice or speak to Dixcart regarding the precise status in Malta and Portugal: advice@dixcart.com.

Additional Information

Dixcart can assist with residence applications in Cyprus before and after 31 December 2020.  The key criteria in terms of applying for residence documentation is that the main applicant must be resident in Cyprus before the end of the transition period.

For more information, please contact Katrien de Poorter in the Dixcart office in Cyprus: advice.cyprus@dixcart.com, or get in touch with your usual Dixcart contact.

Why Cyprus?

Cyprus has become an attractive option for companies and individuals. Advantageous tax incentives exist and Cyprus is popular as both a corporate and residential location, offering a sound infrastructure, and also enviable weather. 

Benefits Enjoyed by Tax Residents of Cyprus who are not Domiciled in Cyprus

As a result of pre-existing tax legislation and the exemption from Cyprus’ Special Contribution to Defence Tax (SDC), introduced in 2015 legislation, non-domicilaries benefit from a ZERO rate of tax on the following sources of income:

• Interest
• Dividends
• Rental income
• Capital gains (other than on the sale of immoveable property in Cyprus – subject to a partial exemption on newly acquired property)
• Capital sums received from a pension, provident or insurance fund

These zero tax benefits are enjoyed, even if the income has a Cyprus source and is remitted to Cyprus.

• In addition there are NO wealth or inheritance taxes in Cyprus.

Other Beneficial Features of the Cyprus Tax System for Individuals

• Income Tax Reduction for New Personal Income Tax Payers

Individuals who were not previously resident in Cyprus and take up residency in Cyprus for work purposes are entitled to the following reduction, as long as their annual salary is greater than €100,000:

•  50% of the salary earned in Cyprus is exempt from income tax for a period of ten years. 
• Low Tax Rate: Foreign Pensions

Individuals receiving a pension arising from services provided abroad can elect to pay an income tax rate of 5% on pension income in excess of €3,420.

July 2015 Legislation

On 9 July 2015 the Cyprus House of Representatives approved new tax laws which provide significant benefits to high net worth individuals relocating to Cyprus. It is since this time that Cyprus has operated a non-dom regime.

The main benefits of the new legislation were:

• Special Defence Tax (SDC) exemption for Cypriot non-domiciled tax residents
• Extension of the personal income tax reduction on the salaries of new residents
• Capital gains tax exemption: on newly acquired Cyprus immoveable property
• Reduction in land registry fees
• Corporation tax: notional interest reduction

The Definition of Residence and Non-Domicile in Cyprus for SDC Purposes

• In July 2017, the Cyprus Government voted for an amendment, establishing a new “60 day rule”. This new rule applies to individuals who, in the relevant tax year:
  • reside in Cyprus for at least 60 days.
  • operate/run a business in Cyprus or are employed in Cyprus or are directors of companies which are taxed in Cyprus. Individuals must also have a residential property which they own or rent.
  • are not tax resident in another country.
  • do not reside in any other single country for a period exceeding 183 days in aggregate.

If individuals physically reside in Cyprus for more than 183 days in one calendar year, they are considered Cyprus tax resident. This is known as the “183 day rule”.

If the applicant satisfies either the “183 day rule” or the “60 day rule” and becomes tax resident in Cyprus (but not domiciled there), the tax benefits detailed above can be enjoyed.

Summary

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