Cyprus attracts not only with its comfortable living conditions. Another factor that ensures a considerable flow of expats is the tax residency that provides you with the most attractive taxes in Europe. Let's look at what residents and non-residents are offered, what the tax rates are and how to optimize them. The country provides several options on how to become a tax resident of Cyprus.
Content:
- Tax residency in Cyprus
- How to become a tax resident in Cyprus in 2023?
- Benefits of being a resident
- What taxes to pay in Cyprus?
- How to avoid double taxation?
- How to ensure low taxes in Cyprus?
- Conclusion
Tax residency in Cyprus
The answer to the question of who is a tax resident of a country is quite simple. This is a person permanently residing on its territory or staying for a certain period. Below we will look at how long you need to stay in Cyprus to obtain this status.
How to become a tax resident in Cyprus in 2023?
Until 2017, a person who stayed on its territory for at least 183 days could be considered a resident of a country. With amendments to the legislation, the rule was expanded and now foreigners have two options. The first one is staying in the country for a total of more than 183 days without any additional conditions. The second one is staying in the country for 60 days, but you need to meet several more criteria:
- not reside in any other country for more than 183 days, and the day of departure from Cyprus is not calculated as a day of residence as opposed to the day of arrival;
- do not have the status of a tax resident of another country;
- have other connections in Cyprus.
The last criterion means running a private business or working under a contract of employment in a local company, or having property in Cyprus, which you can own or rent out.
Benefits of being a resident
Having a tax certificate (domicile) provides additional opportunities. Among the advantages are:
- an opportunity to obtain tax benefits for investments, inheritance and a number of other incomes;
- a low income tax;
- double taxation protection under bilateral agreements with more than 60 other countries;
- an opportunity to optimize the payment of duties with proper structuring of financial assets.
What taxes to pay in Cyprus?
The personal income tax is calculated on a progressive scale. If your annual income is up to €19,500, you do not have to pay this tax. For incomes up to €28,000, the rate is 20%. With an increase in financial revenues, the rate also grows by 5% for each total period. The maximum rate of 35% is provided for income from €60,001. For non-residents, the rate is calculated in a similar way but only for the amount of money that earn in the country.
Also, persons permanently residing and having income in the country pay a special defence contribution. This fee consists of 3 parts: a fee on dividends and rental income, interest income, and capital gains from the sale of securities and corporate rights. For rental income the rate is 2.25%. Non-residents are exempt from paying a defence contribution.
Holders of a tax residence certificate also pay:
- Social Insurance contributions (the rate is calculated depending on the income );
- General Health contributions;
- a capital gains tax;
- VAT on goods and services.
Calculating income of an individual
Employees are taxed on all remuneration, wages, bonuses, and employment benefits. The exception is amounts that reimburse expenses for business travel and business entertainment.
If a pensioner receives a pension from abroad, a complex payment calculation scheme is used. Amounts not exceeding €3,420 are not subject to tax. If the pension exceeds this figure, the tax rate is 5%.
The income of the self-employed is calculated at the personal income tax rate. However, the money spent on equipment, consumables and other items required to make a profit are not subject to taxes in most cases. However, these expenses must be documented.
Tax benefits for foreigners
From January 2022, additional income tax benefits were introduced for individuals who were not a tax resident of Cyprus in the previous tax year. The law provides for a deduction of 50% of income upon first employment in the republic if the salary exceeds the levy-free amount.
In addition, there is no tax on the right to own a house or apartment in Cyprus. The only additional costs are the fees paid when purchasing real estate. Its value is 0.4% of the market value of the property.
How to avoid double taxation?
Double taxation applies when the same income or financial asset is taxed in two or more countries or regions. This can happen when an entity (either an individual or a legal entity) has connections with a several jurisdictions and each of them claims to tax the income or asset.
The answer to the question of whether you can be a tax resident of two countries and avoid double taxation depends on whether a particular country has signed a treaty with Cyprus. This international agreement has been concluded with many countries, from Andorra and the Netherlands to the USA.
As an additional benefit for foreigners, residents with foreign income that is subject to foreign tax are entitled to a credit equal to the lesser of the foreign tax and the Cypriot tax levied on the particular financial income.
How to ensure low taxes in Cyprus?
In order to take full advantage of the preferential taxation system, residency in one country is required. In this case, benefits depend on whether an applicant is a resident or not.
An individual may be considered a non-resident if they have resided in Cyprus for less than 17 years but spends more than 60 days a year on the island. Moreover, this rule applies regardless of whether the state is the taxpayer’s home at the place of origin or choice.
The government's goal in introducing economic benefits for people without permanent residence in the country is to stimulate the influx of investment from entrepreneurs, business people and people with high incomes.
Conclusion
It can be a daunting task to study taxation features of another country, but it is quite possible. One of the fundamental factors when choosing a country for relocation remains that Cyprus has the lowest taxes in the EU. This is a good reason to carefully study local property offers. You can find an apartment or villas in Cyprus on our website.