RELOCATING TO CYPRUS
The changes initiated into the business world by international, European and local institutions & authorities have resulted in an ongoing and progressive demand for more compliance and substance with regards to corporate business.
Our Law firm provides legal & practical assistance to businessmen and investors who wish to adopt best practices and relocate their business in Cyprus in order to face the new economic & financial order and secure their tax optimization. Please find below arguments for relocating to Cyprus:
The 60 days Tax Residency
On July 14th 2017, the Parliament of Cyprus approved a bill that amends the Income Tax Law and allows an individual to be considered as tax resident in Cyprus, provided that he lives in Cyprus 60 days (2 months) during the year meets cumulatively the following conditions:
- The individual does not remain in any other state for one or more periods which altogether exceed 183 days in the same tax year, and
- The individual is not tax resident in any other state for the same tax year, be considered to be a tax resident of Cyprus, provided that the following conditions are cumulatively met:
(i) The individual should remain in Cyprus for at least 60 days during the tax year;
(ii) The individual should pursue any business in Cyprus and/or to work/be employed in Cyprus and/or to be a director in a company tax resident in Cyprus at any time during the tax year;
It is clarified that an individual who cumulatively fulfils the above conditions is not considered as tax resident of Cyprus in the tax year, if in that year the exercise of any business and/or employment in Cyprus and/ or the holding of a post to a taxable person of Cyprus have ceased.
(iii) The individual should maintain a permanent residence in Cyprus, which can be either owned or rented by him.
For the purposes of calculating the days of stay in Cyprus:
(a) The day of departure from Cyprus is considered as a day outside Cyprus;
(b) The day of arrival in Cyprus is considered as a day in Cyprus;
(c) Arrival in Cyprus and departure from Cyprus within the same day is counted as one day in Cyprus;
(d) Departure from Cyprus and return to Cyprus within the same day is counted as one day outside Cyprus. Thus, under the new provisions, an incentive is given to an individual who is not a tax resident in any other state for the same tax year to transfer his tax residence to Cyprus and to be taxed only on income from the activities the individual exercises in Cyprus.
It is noted that for employment purposes in Cyprus with earnings in excess of Euro 100,000, an individual is allowed for an exemption from tax of 50% of the salary for a period of 10 years, which significantly reduces his income tax liability. At the same time, an individual is granted exemption from income tax or defense tax on dividends and interest received either in Cyprus or abroad, provided that such individual is considered as Non-Dom in Cyprus.
The Non-Domicile tax exemption concept for Cyprus Tax-Residents
According to the Non-Domicile concept introduced in July 2015, an individual who lives more than 183 days annually in Cyprus and therefore is Tax-Resident in the Republic of Cyprus by virtue of the Income Tax Law, and does not maintain his/her domicile in Cyprus is exempt from SDC tax (Special Defense Contribution).
The non-domiciled tax-residents individuals will be exempted from the following taxes whether the source of income is from within or outside Cyprus:
- 17% SDC (Special Contribution for Defense) on dividends
- 30% SCD on interest bank deposits
- 2.25% (3% on 70%) SCD on rental incomes
The non-domicile concept applies to:
-an individual who does not have the domicile of origin in Cyprus, or
-an individual who was a Cyprus tax resident for less than 17 years out of the last 20 years before the relevant tax year.
The non-domicile concept does not apply to an individual who has for domicile of origin Cyprus by virtue of the Wills & Succession Law Cap 195 or is Cyprus tax resident under the Income Tax Law for at least 17 years out of the last 20 years preceding the relevant tax year irrespective of the individual’s domicile of origin, however, this does not apply in 2 cases:
(1) in the event the individual maintains a domicile of choice outside Cyprus as per the Wills & Succession Law Cap 195 and has not been a Cyprus Tax resident under the Income Tax Law for any period of 20 years preceding the relevant tax year, the domicile of choice implying the intention to acquire the domicile and making it his/her permanent home,
(2) in the event the individual has not been Tax-Resident in the Republic of Cyprus by virtue of the Income Tax Law for a period of at least 20 consecutive years before the new Non-Domicile concept came into effect on July 16th 2015.
Tax relief for highly paid individuals employed in Cyprus
Individuals employed in Cyprus with annual income above € 100,000 who become Cyprus tax residents benefit from a 50% tax exemption on salary for a 10 year period.
Tax relief for non-resident individuals employed in Cyprus
Individuals who were residing abroad before the beginning of their employment in Cyprus and become Cyprus tax residents benefit from a 20% tax exemption on salary with a maximum exemption amount of € 8,550.
Tax relief for employment income earned abroad
Individuals who are Cyprus tax residents and provide services outside Cyprus for more than 90 days annually to a non-Cyprus resident employer or a foreign permanent establishment of a Cyprus resident employer benefit from 100% exemption on the income received from such services.
Tax relief for pension
Individuals receiving a pension related to past employment provided abroad are taxed 5% on the pension in excess of € 3,420.
Tax exemption on life insurance & approved funds
Individuals benefit from total tax exemption on any lump sum repayment related to life insurance or approved funds.
Low social security contribution
Social Security contribution is at 7, 8% on the employee’s gross income with a maximum annual salary of € 54,396.
Cyprus economic revival
International financial institutions have forecasted the growth of the Cypriot economy between 2.5%-3%.
Cyprus returned to international financial markets in record time.
Cyprus has been upgraded by international credit rating agencies (Moody’s, S&P, Fitch).
Cyprus is considered credit positive due to inflow of deposits amounting to €873m at Cypriot Banking System.
Cyprus exited the international support programme on March 7th, 2016.
The Cyprus economy expanded faster than the Eurozone average in the first three months of the year according to the latest figures from Eurostat.
Cyprus as a financial business centre
Consolidation of public finances & exit from Economic Adjustment program
Low operational costs
Attractive and competitive tax regime for the company, its owners and the employees
Business investment opportunities: tourism, real estate, shipping, research & development, innovation (see Start-up paragraph below).
Strategic location between Europe, the Middle East, Asia and Africa
Member of the EU and Eurozone
Stable and transparent and English common law legal and regulatory framework
Availability of high quality professional services at competitive rates
High availability of skilled, multilingual workforce
Modern and advanced infrastructure
Macroeconomic prospects & opportunities
Possibility for obtaining work permits for EU and non-EU employees
Acquisition of Cyprus citizenship
‘Largely Compliant’ upgraded OECD Global Forum rating EU & OECD, CRS, EOI, BEPS, FATCA Compliant / Access to EU directives
One of the lowest corporate income tax rates in the EU at 12, 5%
Dividend participation exemption
Exemption from tax on profits from disposal of securities (shares, bonds, debentures)
No withholding taxes
No succession taxes
No taxation of capital gains (except for disposal of real estate in Cyprus or shares of company holding real estate in Cyprus)
No Thin Capitalisation rules
No Controlled Foreign Company (CFC) rules
Notional Interest Deduction (NID) on investment in Cypriot companies
For individuals with employment in Cyprus which exceeds Euro 100.000 per annum, there is an exemption from personal income tax of 50%, which applies for the first 10 years of employment in Cyprus, and applies to persons who were not tax resident of Cyprus for any 3 out of the last 5 tax years prior to the commencement of employment in Cyprus (including the previous tax year)
For individuals with employment in Cyprus below Euro 100.000 per annum relocated to Cyprus to support the operations of the company, there is an exemption of 20% of the employment income in Cyprus of a person (who was not tax resident of Cyprus during the previous tax year), up to a maximum of €8.550 per annum, which applies for the first 10 years of employment in Cyprus. This exemption regime applies until the year 2020.
Start-up legislation (Pending Parliament approval)
Cyprus provides tax incentives for investing in innovative Start-ups and SMEs.
The qualifying investors are the following:
–Existing innovative Enterprises: R&D costs represent at least 10% of its total operating costs in at least one of the three previous years
–New innovative Enterprises (Start-ups): Assessment based on business plan
The tax incentives are the following:
–Income tax relief of up to 50% of taxable income for natural persons investing in qualifying innovative SMEs
–Upper limit of deduction €150 000/year
–Right to claim the tax relief within a 5-year period
Cyprus life quality
Cyprus is ranked 1st in safest crime-free “small countries”.
Cyprus is ranked 1st in cleanest waters in the EU & most blue flag beaches per coast line
High level educational institutions
Millennia of culture, history & art
and the Mediterranean sea…