What are the Tax Efficiencies Available in Cyprus for Individuals and Corporates?
Background
Cyprus is a hidden European gem in terms of the opportunities and benefits available to individuals and corporates, moving there on a permanent basis and/or establishing residency through the ’60 Day Tax Residency Rules’.
EU and Non-EU Individuals
For non-EU nationals there are various programmes for individuals to enable them to move to Cyprus, with one option being to establish a company in Cyprus. EU nationals are free to move to Cyprus, as Cyprus is in the EU.
The ‘60 Day Tax Residency Rule’ is a route for EU and non-EU nationals, to optimise the tax efficiencies available from Cyprus, without needing to reside there more than 60 days a year.
We will start by looking at the tax benefits available to individuals and to corporates.
Tax Benefits Available to Individuals
What are the Advantages of Becoming Cyprus Tax Resident?
Cyprus non-domicile status can be an effective means to optimise personal wealth planning. The advantages of becoming Cyprus tax resident, an option for individuals not previously tax resident in Cyprus, include the following:
- Non-Domicile Status
The non-domicile tax regime is particularly interesting for individuals whose main source of income is either dividend or interest income, as these sources of income are not taxed in Cyprus.
Individuals can also take advantage of the exemption from taxation of capital gains, other than on the sale of immoveable property in Cyprus.
In addition, there is an exemption from taxation on capital sums received from pensions, provident and insurance funds as well as several other tax advantages, including; a low rate of tax on foreign pension income, and no wealth or inheritance taxes in Cyprus.
The zero tax benefits, mentioned above, are enjoyed even if the income has a Cyprus source and/or is remitted to Cyprus.
- Employment Income Tax Exemption
There is a 50% exemption from taxation, for income for ‘first time’ employment in Cyprus, for individuals with an annual remuneration income of over €55,000.
This exemption is available for a period of up to 17 years.
- Tax Exemption on Income from Employment Outside Cyprus
Individuals who are employed outside of Cyprus, for more than 90 days in aggregate in a tax year, by a non-Cyprus tax resident employer or foreign permanent establishment of a Cyprus tax resident employer, are exempt from income tax on this income.
Tax Benefits Available to Companies
- Corporate Tax Rate
Cypriot companies enjoy a 12.5% rate of tax on trading, and a zero rate of capital gains tax. In addition, Cyprus tax resident companies and Cyprus permanent establishments (PEs) of non-Cyprus tax resident companies, are entitled to a Notional Interest Deduction (NID), on the injection of new equity used to generate taxable income.
- NID
NID is deducted from taxable income. It cannot exceed 80% of the taxable income, as calculated prior to the NID, arising from the new equity. A company could achieve an effective tax rate as low as 2.50% (corporate tax rate 12.50% x 20%). Please contact the Dixcart office in Cyprus for further information: advice.cyprus@dixcart.com
- Increased Tax Deduction for Research and Development Expenses
Eligible research and development expenses can be deducted from taxable income equivalent to 120% of the actual spend.
Starting a Business in Cyprus as a Means of Relocation for Non-EU Nationals
Cyprus is an attractive jurisdiction for trading and holding companies and offers a number of tax incentives, as detailed above.
To encourage new business to the island, Cyprus offers two temporary visa routes as a means for individuals to live and work in Cyprus:
- Establishing a Cyprus Foreign Investment Company (FIC)
Individuals can establish an international company which can employ non-EU nationals in Cyprus. Such a company can obtain work permits for relevant employees, and residence permits for them and their family members. A key advantage is that after seven years, third country nationals can apply for Cyprus Citizenship.
- Establishment of a Small/Medium Size Innovative Enterprise (Start-up Visa)
This scheme allows entrepreneurs, individuals and/or teams of people, from countries outside the EU and outside the EEA, to enter, reside and work in Cyprus. They must
establish, operate, and develop a start-up business, in Cyprus. This visa is available for one year, with the option to renew for another year.
Please see the Dixcart Article: Programmes to Move to or Become Tax Resident in Cyprus.
Additional Information
For further information about the attractive tax regimes available to individuals and companies in Cyprus, please contact Robert Homem or Katrien de Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com
