Cyprus Tax Stimuli for Relocating Persons and High Net-Worth Individuals

Businesses are paying particular attention to the countries in which they operate and why, as expectations for international taxation continue to shift. Local fully-fledged offices do meet economic substance requirements, which is critical to protecting fiscal benefits.

Cyprus is an ideal country to establish a business presence due to its strategic location, its full EU membership, a powerful legal system, the competitive corporate tax rate of 12.5% as well as tax exemptions, and an educated workforce.

In addition to the incentives stated above, Cyprus provides advantages specifically adapted to multinational companies that relocate their key staff members. These advantages also entice high-net-worth individuals to make Cyprus their home.

Cyprus always focuses on advantageous tax policies to provide a business-friendly environment. Below, we will go through the main components of the Personal Tax System as well as some of its privileges.

Key Tax Benefits for Expatriate

Exemptions from income taxes when working in Cyprus

An expatriate moving to Cyprus is entitled to one of the following income tax exemptions on employment income:

• Exemption from taxation of 50% of the salary and remunerations from any employment performed in Cyprus for a period of ten years, provided that such income exceeds €55,000 gross per year, and under the condition that the individual resided outside of Cyprus prior to the commencement of his or her employment in Cyprus.
• Exemption from taxation of 20% of the gross salary and remunerations or €8,550 (whichever is less) from any employment exercised in Cyprus for a period of five years, under the condition that the individual resided outside of Cyprus prior to the commencement of his or her employment in Cyprus. This exemption is accessible for qualifying individuals who start working in Cyprus between 2012 and 2025.

Exemption from income tax for employment outside of Cyprus

The provision of services provided against salary to a non-Cyprus tax resident employer outside of Cyprus or to a Cyprus tax resident employer’s overseas permanent establishment for more than 90 days per year is free from income tax in Cyprus.

Contributions to social insurance and other contributions

Employees and employers must pay social insurance contributions of 8.8% each, on gross employment income, with a maximum annual cap on insurable income of EUR 62,868, as of 1 January 2024.

Qualifying EU nationals who take up employment in Cyprus may be granted a term of exemption from contributing to the Cyprus social insurance plan. Employees and employers must also contribute to the General Healthcare System (GHS) at a rate of 2.65% and 2.9% respectively of the gross salary.

No tax on income from dividends and interest for Cyprus non-dom residents

A non-domiciled individual is exempted from taxation income from dividends and interest. Nevertheless, such income is liable to contributions to the GHS at the rate of 2.65% for Cyprus tax residents.

No tax on gains from the sale of securities

Gains from the sale of shares, bonds, and other similar securities (including options, contracts and rights thereon) are not taxable in Cyprus. However, such income (of a commercial character only) is liable to 2.65% GHS contributions.

No tax on retirement benefits, overseas pension income

A lump sum received as a retirement gratuity is tax-free. Furthermore, a Cypriot tax resident individual receiving pension income from services performed overseas may elect to be taxed at a flat rate of 5% on amounts in excess of €3,420 per year.

Exemption from capital gains tax (CGT) on real estate sales

Gains on the sale of non-Cypriot real estate are excluded from CGT.

Estate duty, wealth tax, gift tax and inheritance tax

In Cyprus, there is no estate duty, wealth tax, gift tax, or inheritance tax.

Personal Taxation in General

Individuals residing in Cyprus are subject to the following direct taxes:

• income tax;
• Special defence contribution on dividend, interest, and rental income;
• Capital gains tax on profit from the sale of real estate located in Cyprus.

Individuals working in Cyprus may also be required to pay social insurance and other contributions. Depending on his or her tax residency and domicile status, an individual is subject to income tax and/or special defence contribution.

Cyprus Tax Residency

A tax resident of Cyprus is an individual who spends more than 183 days in the country.

An individual can be a tax resident of Cyprus even though he or she spends less/ equal than 183 days in Cyprus if all of the following conditions are met within the same tax year (1 January – 31 December):

• is not a tax resident in any other country
• spends no more than 183 days in any other country;
• owns or rents a permanent home in Cyprus;
• spends at least 60 days in Cyprus;
• operates a business in Cyprus, is employed in Cyprus, or holds an office in a Cyprus tax resident person at any time during the tax year.

If an individual’s employment/business or holding of an office is terminated during the year, he or she is no longer considered a Cyprus tax resident for that tax year.

Personal income tax rates

Taxable income of up to €19,500 is not taxed in Cyprus. Taxable income exceeding this amount is subject to progressive income tax rates varying from 20% to 35% in brackets of approximately seven to eight thousand Euros (the maximum rate applies to income exceeding €60,000).

Domicile

An individual’s domicile is either that of his or her father (at birth) or that of his or her choosing. As a result, a child born to a non-Cypriot domiciled father is regarded as non-domiciled in Cyprus. On the other hand, a non-domiciled individual will be considered as domiciled in Cyprus if he or she has been a Cypriot tax resident for at least 17 of the previous 20 years before the relevant tax year. Individuals born in Cyprus to a Cypriot father may also qualify as non-domiciled in Cyprus under specific criteria.

Taxable income

A Cypriot tax resident individual, regardless of domicile status, is subject to income tax on his or her worldwide earnings, subject to exemptions and allowances. A non-domiciled tax resident individual in Cyprus is exempt from tax on dividend and interest income.

Please do not hesitate to contact the Shanda Consult Team for any questions regarding taxation in Cyprus.

By Stefan Nolte, Managing Director of Shanda Consult and President of the Cyprus Germany Business Association (CGBA)