Cyprus Tax Residency

Tax Residency and Non-Domicile Status for Individuals in Cyprus

Understanding Tax Residency for Individuals

In Cyprus, an individual’s tax residency is primarily determined by their physical presence in the country. If you spend more than 183 days in Cyprus within any calendar year, you’re considered a tax resident for that year, according to the “183-day rule.”

However, in a significant update to the Income Tax Law in 2017, Cyprus introduced the “60-day rule.” Now, individuals can also qualify as tax residents if they meet certain criteria within any calendar year, even if they spend less than 183 days in Cyprus. These criteria include not residing in any other country for more than 183 days, not being a tax resident elsewhere, spending at least 60 days in Cyprus, engaging in business or employment within Cyprus, and maintaining a permanent residence in Cyprus.

The Advantage of Non-Domicile Status

Cyprus has bolstered its tax system’s appeal by introducing the non-domicile status in 2015. Tax residents of Cyprus who are not domiciled in the country enjoy an exemption from the Special Defence Contribution (SDC) on dividends, interest, and rental income. This status hinges on not being domiciled in Cyprus according to specific criteria, including a domicile of origin and a domicile of choice, with certain conditions allowing individuals to qualify as non-domiciled for tax purposes.

Tax Incentives for Individuals

Cyprus offers a suite of tax incentives for individuals, including a tax exemption on the first €19,500 of taxable income and various exemptions for income from employment, pensions, and investment income. Notably, profits from the sale of shares and no capital gains tax on property located outside Cyprus stand out as attractive benefits, alongside the absence of inheritance, wealth, and gift taxes.

Tax Residency for Companies: Stavrinou & Co’s Insight

Corporate Tax Residency in Cyprus

A company is considered a tax resident in Cyprus if its management and control are exercised within the country. This determination leans on OECD guidelines, focusing on where key management decisions are made and where the company’s board of directors operates.

Proposed Changes to Corporate Residency Test

Looking forward, Cyprus aims to refine its corporate tax residency test. A bill introduced in 2021 seeks to include companies incorporated in Cyprus as tax residents, provided they aren’t considered tax residents elsewhere. This amendment aims to simplify and clarify the criteria for corporate tax residency.

Cyprus’s Corporate Tax System: A Competitive Edge

Cyprus prides itself on a corporate tax system that is not only simple and transparent but also aligned with EU directives and OECD practices. With one of the EU’s lowest corporate tax rates at 12.5%, Cyprus offers an array of benefits, including an extensive double tax treaty network, exemptions on foreign dividends, and attractive schemes for intellectual property and shipping companies. The system’s design to foster business growth is evident in its provisions for notional interest deductions, capital gains exemptions, and favorable tax loss carryforward rules.

In summary, Cyprus offers a compelling tax framework for both individuals and corporations, blending traditional residency rules with innovative policies like the non-domicile status and corporate tax incentives. These measures, coupled with strategic adjustments in response to global challenges like the COVID-19 pandemic, underscore Cyprus’s commitment to maintaining a competitive and attractive tax environment.