Since 2004, Cyprus is a full Member State of the European Union. This fact, along with its good strategic location, highly skilled human capital, excellent infrastructure, reliable communications, relatively low cost of living, sound and stable legal system, warm climate and hospitality of its people, are some of the advantages which contribute to Cyprus' continuous development as a competitive international financial, tourist, retirement and relocation centre.
The Government of Cyprus has for many years implemented policies to attract foreign investments and foreigners to Cyprus. One of the most important policies is the newly introduced notion of resident but not domicile which puts Cyprus in the map of jurisdictions that are considered ideal for HNWI to reside in.
We present herein below an outline of the main tax issues an individual wishing to relocate or retire in Cyprus will encounter.
This outline does not deal with the tax aspects applicable to legal person but refers only to physical persons. For relevant information on legal persons kindly refer to our publication, "Cyprus Tax Legislation on Companies (The Foreign Investors' Approach)".
B. TAXATION IN GENERAL
The Cyprus tax system may impose taxes only to tax residents of Cyprus or persons who have income from sources in Cyprus.
I. Tax Residents in Cyprus:
Tax resident of Cyprus, in the case of a physical person, means:
- Any individual who resides in Cyprus for one or more periods which exceed in total 183 days in the financial year, or
- Any individual who stays in Cyprus
for at least 60 days in the year of assessment, provided
- He/she is not tax resident in another country
- He /she maintains a permanent residence in Cyprus which can be owned or rented
- He/she conducts any business or is employed in Cyprus or is a director in a Cyprus company as at the 31st of December in the year of assessment.
All Cyprus tax residents, as identified above, either Cypriots or foreign nationals, are taxed in Cyprus on their worldwide income accrued or derived from all sources in Cyprus and abroad.
As from 2015, a person who is a tax resident of Cyprus but his/her place of domicile is outside Cyprus can enjoy significant tax benefits as analysed in section D below.
A tax resident of Cyprus may be subject to the following type of taxes or deductions on income:
- Income Tax (Analysed in Section C)
- Special Defence Tax (Analysed in Section D)
- Social Insurance Contributions (Analysed in Section E)
- Capital Gains Tax (Analysed in Section F)
II. Non Tax Residents in Cyprus:
Individuals who are not tax residents of Cyprus are taxed on income accrued or derived only from sources in Cyprus, if any.
C. INCOME TAX
Income tax is imposed on the chargeable income. Chargeable income includes the following types of income:
- Employment Income and Benefit in Kind
- Business Income (as a sole trader)
- Royalty Income from Intellectual Property
- Active Interest Income
- Pension and Annuities
- Rental Income from Property
- Trading Goodwill
I. Obligation for preparation and submission of Audited Financial Statements by individuals:
Cyprus or Non Cyprus tax residents, who generate gross income in Cyprus from the carrying out of a business activity (i.e. having Business Income as sole traders) which equals or is in excess of EURO 70.000 per annum, are obliged to prepare and submit annual audited Financial Statements to the Tax Department and issue invoices and receipts in connection with the transactions and collections.
Cyprus or Non Cyprus tax residents, generating total gross income less than EURO 70.000 per annum, are not required to prepare and submit audited financial statements, but are obliged to maintain books and records.
II. Individual Tax Rates:
The following tax rates apply for physical persons who are tax residents of Cyprus:
The law provides for some expenses to be deductible from a physical person's taxable income. The list of such expenses can be found in Schedule 1.
Further, there are some types of income which are exempted from taxation which can be found in Schedule 2.
Tax credit relief is granted if on a particular income, taxation has already been paid abroad provided that the taxpayer provides the tax authorities with the original tax receipts evidencing the payment of such foreign tax.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.