New trends in the international tax landscape mean that international groups will need to enhance corporate substance in the countries from which they operate, in order to ensure legal certainty regarding the taxation regime and the respective rules to which they shall be called to respect. The focus on substance has, in turn, led to a large number of international professionals relocating in other jurisdictions, where the corporate headquarters or branches are situated and, further, to the realisation that these professionals would onwards be subject to a different tax regime in relation to their own finances. Being a country which traditionally maintained a business friendly environment that attracts foreign investment, Cyprus has taken a series of steps that modernise the tax regime applying to non domiciled individuals, who decide to relocate in Cyprus and work from here. This is simply another brick in the wall: in addition to its strategic location, full EU membership, developed legal system, competitive corporate income tax rate of 12.5%, well-educated workforce and business-friendly environment, Cyprus now offers a number of personal tax incentives that aim to assist highly skilled individuals to relocate and perform their duties from Cyprus. The tax incentives may also appeal to highly remunerated individuals who are willing to relocate to Cyprus.
When does someone have Cyprus tax residency?
An individual is tax resident in Cyprus if he/she is present in Cyprus for more than 183 days in a tax year.
What is domicile and why this is important?
The new legal regime seeks to redefine this concept by the introduction of the following basic rules: first, that an individual born to a non-Cypriot domiciled father is considered to be non-domiciled in Cyprus; second, that a non-domiciled individual may be deemed as domiciled in Cyprus if he/she has been a Cypriot tax resident for at least 17 out of the last 20 years prior to the relevant tax year.
Which personal taxes apply in Cyprus?
The main types of personal taxes and contributions in Cyprus are income tax, social insurance and other contributions on employment income and special defence contribution on dividend, interest and rental income. As far as income tax is concerned, taxable income up to €19,500 is effectively exempt from income tax. Taxable income exceeding this amount is subject to progressive income tax rates ranging from 20% to 35% (for income exceeding €60,000). As far as social insurance and contributions are concerned, the employees and employers are subject to social insurance contributions at the rate of 7.8% and 9.5% respectively, on the employees’ gross employment income, subject to an income ceiling.
Furthermore, employers are subject to an additional 2% contribution calculated on the employees’ gross employment income.
What is the personal tax treatment of a person who is a Cyprus tax resident and, at the same time, qualifies as a non-domiciled individual?
An expatriate individual relocating to Cyprus (irrespective of his/her tax residency or domicile status) is eligible to one of the following income tax exemptions on employment income: 50% of the remuneration from any employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his/her employment in Cyprus. The exemption applies for a period of ten years for individuals commencing employment from 1 January 2015, provided that a qualifying individual should not have been a Cyprus tax resident for at least 3 out of the last 5 years immediately prior to the year of commencement of employment and he/she should not have been a Cyprus tax resident in the tax year immediately prior to the year of commencement of employment. The 50% tax exemption will be granted in any tax year in which the annual employment income of the qualifying individual exceeds €100,000, regardless if in a year during the 10-year period the employment income falls below €100,000. This provision shall apply where the annual employment income exceeds €100,000 during the first year of employment and the Commissioner is satisfied that the decrease and subsequent increase observed in the annual income of the employee was not intended to take advantage of the 50% tax exemption. 20% of the remuneration or €8,550 (whichever is the lower) from any employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his/her employment in Cyprus.
The exemption applies for a period of five years from 1 January following the year of commencement of the employment, provided the employment started during or after 2012. This exemption applies for tax years up to 2020 and it is then abolished. Remuneration from rendering services outside Cyprus to a non-resident employer or to an overseas permanent establishment of a resident employer for more than 90 days in a tax year is exempt from income tax. An exemption from contributing to the Cyprus social insurance scheme may be granted for a period of time to qualifying expatriate EU nationals that take up employment in Cyprus. A non-domiciled individual, irrespective of his/her tax residency status is exempt from tax on dividend and interest income.
No tax on gains arising from the disposal of investments
Any gains arising from the disposal of shares, bonds and other similar financial instruments (including options and rights thereon) are exempt from tax. Gains arising from the disposal of non-Cypriot real estate are exempt from Capital Gains Tax. Furthermore, a specific Capital Gains Tax exemption applies to gains arising from the disposal of Cypriot real estate, if acquired between 16 July 2015 and 31 December 2016.
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