Cyprus Tax for Non-Residents – Benefits & Exemptions

CYPRUS CBI HAS ENDED

IMPORTANT UPDATE: As of 1 November 2020, Cyprus cancelled its popular citizenship by investment program. This means that investors will no longer be able to acquire Cypriot citizenship and a passport by investment directly. However, the Cyprus Golden Visa provides an alternative path to permanent residency through investment. Those still looking for European citizenship can apply to the Malta citizenship program, which offers a direct investment route to a Maltese passport.

With incredible incentives under its “Cyprus Tax for Non-Residents” legislation,  Cyprus is known worldwide as an investment hub.

Not long after the fall of the Berlin Wall, Cyprus built itself into a tax haven for foreign investors with a particular focus on appealing to Russian oligarchs and Eastern European citizens and organizations, attracting many high-net-worth individuals to seek permanent residence in the nation.

With its strategic location, developed legal system, full EU membership, business-friendly environment, educated workforce, competitive income tax rate, and personal tax incentives, Cyprus became ideal for establishing a business presence.

In 2019, the Cyprus corporate tax rate was raised by the government to 12.5 percent, matching that of Ireland and Liechtenstein, but the country continues to provide its citizens and expatriates great taxation policies and incentives.

General Taxes in Cyprus

Cyprus’ Taxation System imposes a specific set of taxes on all of its tax residents, and subjects them to income taxation on their worldwide income regardless of their domicile status. The Cypriot tax authorities provide certain exemptions and allowances for their residents and non-tax residents. For example, if an individual’s annual taxable income amounts to €19,500 or less, it’s considered exempt from taxation. Another example is the exemption of non-domiciled residents from paying taxes on income accrued from dividends and capital gains.

With those exemptions aside, the general taxes that have to be paid to the Cypriot tax authorities are:

• Personal Income Tax (PIT)
• Special Defense Contribution (SDC)
• Social Security Contributions
• General Health System (GHS)
• Capital Gains Tax (CGT)
• Consumption Taxes – or Value-Added Taxes (VAT)
• Immovable Property Transfer Fee
• Immovable Property Transfer Levy (IPTL)
• Immovable Property Tax (IPT)

Cyprus Non-Resident Tax Eligibility

Cypriot income tax legislation determines tax residency based on an individual’s residence status, deeming any individual who spends more than 183 cumulative days in one calendar year in the Republic is a resident of Cyprus and a person tax resident in the country.

On July 14, 2017, the Cypriot Parliament amended Section 2 of their Income Tax Law (ITL) regarding tax residency to state that individuals may also be viewed as Cyprus tax residents provided they fulfill the “60-day rule” criteria. The amendment was deemed effective from that January.

The 60-day rule applies to anyone who resides in Cyprus for at least 60 days in a Cypriot tax year – between January 1 and December 31 – and meets the following criteria:

• Doesn’t spend over 183 cumulative days that year in another country
• Isn’t considered a tax resident in another country
• Maintains a permanent home in the Republic (owned or rented)
• Conducts business activity in Cyprus (as a business owner or an employee)
• Has other defined ties to Cyprus

If the individual’s employment, business, or holding of an office is terminated during that year, they would no longer be considered a Cyprus tax resident as of that same tax year.

Calculating Days In and Out of Cyprus

For a person to determine whether their income falls under the taxation category of ‘income tax in Cyprus for expats,’ or ‘income tax in Cyprus for residents,’ they would have to combine the total amount of days the have stayed in the country that year, following this calculation format:

• The day of arrival in Cyprus counts as a day of residence
• The day of departure from Cyprus counts as a day of non-residence
• Arrival in and departure from Cyprus in the same day counts as a day of residence
• Departure from and arrival in Cyprus in the same day counts as a day of non-residence

Cyprus Tax for Non-Residents & Tax Exemptions

Tax residents of Cyprus have to pay general and foreign taxes on their worldwide income at established tax rates ranging from 20 percent to 35 percent, depending on their annual earnings. Non-residents are subject to taxation only on income they accrue from Cypriot establishments, or any business conducted in the Republic.

Non-residents of Cyprus are provided with several exemptions and incentives to retain their operations and investments in Cyprus, including exemptions on employment income, exemptions on capital gains, and VAT exemptions.

Expats relocating to Cyprus are eligible for one of two income tax exemptions on their Cypriot employment income, regardless of their residency or domicile status. They are:

• 50 percent exemption on remuneration exceeding €100,000 per annum gained from any employment exercised in Cyprus. This exemption is applicable for ten years, starting from the individual’s first year of employment in Cyprus, provided that they:

• • Were a non-resident of Cyprus prior to the commencement of their employment;
  • Haven’t been a tax resident of Cyprus the year prior to their employment;
  • Haven’t been a tax resident for three or more tax years out of the five Cyprus tax years immediately prior to their employment.

• 20 percent exemption or €8,550 (whichever is lower) on gross taxable income generated from employment exercised in Cyprus by any individual who was a non-resident prior to the commencement of their employment. This exemption is applicable for five years to qualifying individuals who commenced their employment in the Republic between 2012 and 2025, and starts from the tax year following the year of their employment.

Effective June 2023, Cyprus revised its 50 percent exemption for non-resident individuals employed in the country. The amendments lower the minimum salary threshold from €100,000 to €55,000 and extend the exemption period from 10 to 17 years.

Salary Generated Overseas Exemptions

Chargeable income that is accrued by salaried services performed outside of the Republic of Cyprus for more than 90 days in one Cyprus tax year, and provided to a non-Cyprus tax resident employer, or an overseas, permanent establishment of a Cyprus resident employer is completely exempt from Cyprus’ personal income taxation.

Dividend and Interest Income Exemptions

Cyprus has tax treaties with over 65 countries that offer nil or reduced withholding tax rates on all dividends, interest income earned, royalties, and pensions received from foreign organizations and businesses. Non-domiciled individuals whose country has such a tax treaty, regardless of their tax residency status in Cyprus, are exempt from paying the Cyprus dividend income tax on profits arising out dividends and interests.

Capital Gains Exemptions

Capital Gains Tax (CGT) in Cyprus is imposed at a rate of 20 percent on gains that arise from the disposal of any immovable property located in Cyprus, including that of shares in companies that directly own those properties. There are, however, are many instances where the disposal of immovable property isn’t subject to the Cypriot CGT. The exemptions include:

• Land, as well as land with buildings, acquired at market value from unrelated parties anytime between July 16, 2015 and December 31, 2016, are exempt from CGT upon their disposal. This exemption excludes exchanges, donations and foreclosures.
• Income generated from the disposal of shares, bonds, or other similar financial investments by a non-Cypriot resident is exempt from taxation. Non-residents will, however, be required to make a contribution to the Republic’s General Health System at a rate of 2.65 percent.
• Gifts between parents and children, spouses, or relatives up to the third degree
• Gifts to a company where the shareholders are all members of the donor’s family, on the condition that they remain to be so for five years after the date of transfer
• Gifts by a family company to its shareholders, on the condition that the property was originally acquired by way of gift, and that it is kept by the new shareholder for at least three years
• Gifts to the government
• Donations to charities
• Donations to political parties
• Transfer of property arising on the occurrence of death
• Transfers of property arising from internal reorganizations
• Exchange or disposal of property under the Agricultural Land Consolidation Laws, with the exemption including gains accrued from an exchange of property that are used to acquire new property. In case a new property is acquired, the tax would be implemented upon the disposal of that new property
• Disposals arising from expropriations
• Disposals of non-Cypriot real estate

Value Added Tax Exemptions

The Cyprus VAT rate is 19 percent. However, there are certain goods and services in Cyprus that are tax-exempt from VAT, and they include:

• The leasing of residential buildings
• Most financial, insurance, and banking services
• Most medical, hospital and dental care services
• Certain educational, cultural, and sports activities
• Supplies for second-hand buildings
• Postal services provided by Cyprus’ national postal authority
• Betting coupons for horse racing and football, as well as lottery tickets
• Management services provided to mutual funds

Other Exemptions

The Cyprus Income Tax Law provides other exemptions for residents and non-residents, including exemptions from:

• Estate duty tax
• Wealth tax
• Gift tax
• Inheritance tax
• Lump sum received from a retiring gratuity
• Lump sum received from commutation of pension
• Lump sum received as compensation for a death or an injury

Other Benefits

Cyprus’ Tax for Non-Residents acts as a huge benefit to those who move around a great deal, or aren’t residents anywhere in the world – otherwise known as ‘monetary migrants’. It gives them a perpetual base in which they can invest their finances.

Cyprus adopts a split-year approach: If an individual arrives in the second half of the year, they won’t be considered a Cypriot tax resident until January 1 of the following year – assuming that they’ve stayed in Cyprus for more than 183 days that year. If an individual arrives in Cyprus by the end of April, for example, and they spend over 183 days in the Republic that year, they become tax residents as of the date of their arrival.

Cyprus’ double tax treaties enable individuals to bypass paying taxes twice on the same taxable income by considering the individual’s domicile, regardless of their residence status. The Republic also provides a residency by investment program – known as Cyprus Investor Immigration Program. Investors and their family members can obtain a permanent residency in Cyprus for a minimum investment value of €300,000. This provides them with full residency rights in Cyprus, and visa-free travel across the European Schengen Zone and 142 other countries.

Although the cost of living in Cyprus may differ from one individual to another, those who don’t seek to live in the country and only invest in it may be pleased to learn about the returns on real estate in Cyprus.

Frequently Asked Questions about Cyprus Tax for Non-Residents