Introduction

Foreign tax residents in Cyprus are exempt from taxation on their worldwide dividend and passive interest income.

On July 14 2017 Parliament approved a bill granting tax resident status to individuals who spend at least 60 days a year in Cyprus, under certain conditions.

Under the 60-day rule, which took effect on January 1 2017, an individual will be considered a Cyprus tax resident provided that he or she has satisfied either the 60-day or the 183-day rule.

According to the Income Tax Law 2002, under the 183-day rule, an individual who spends at least 183 days a year in Cyprus is considered a Cyprus tax resident. The 60-day rule aims to attract a significant number of individuals (eg, investors, entrepreneurs, digital nomads, artists, sportspeople and other businesspeople) who do not fulfil the tax residency requirements in any country. The absence of established tax residency status may leave such individuals exposed to tax authorities in other jurisdictions.

Becoming a tax resident under amended 60-day rule

In order to become a Cyprus tax resident under the 60-day rule, the individual concerned must:

  • remain in Cyprus for at least 60 days during the tax year in question;
  • not reside in any other single state for a period exceeding 183 days;
  • not be tax resident in any other state;
  • carry out business activities or work in Cyprus or be a director of a company that is tax resident in Cyprus at any time during the tax year in question; and
  • maintain a permanent residence in Cyprus (either owned or rented).

Even if an individual meets the aforementioned conditions, he or she is not considered a Cyprus tax resident if his or her business or employment in Cyprus or position in a Cyprus tax resident company has ceased.

Calculating days of residency in Cyprus

Tax residency in Cyprus is calculated as follows:

  • the day of departure from Cyprus is considered one day outside Cyprus;
  • the day of arrival in Cyprus is considered one day in Cyprus;
  • arrival in Cyprus and departure from Cyprus within the same day is considered one day in Cyprus; and
  • departure from Cyprus and return to Cyprus within the same day is considered one day outside Cyprus.

Applicable tax benefits

Individuals who are Cyprus tax residents, whether under the 60-day or the 183-day rule, are taxed in Cyprus on their worldwide income. However, the following exceptions apply:

  • A Cyprus tax resident who is an individual non-domiciled in Cyprus is exempt in Cyprus from taxation on his or her worldwide dividend and 'passive' interest income.
  • Profit from the sale of securities is exempt from tax in Cyprus. 'Securities' include shares in local or foreign companies, bonds, debentures and options, except in cases where the value of the shares derives from the value of immovable property in Cyprus.
  • An individual who is going to be employed in Cyprus and whose income will exceed €100,000 will enjoy a 50% discount on his or her income tax in Cyprus for 10 years provided that he or she has not been a tax resident of Cyprus before the commencement of his or her employment in Cyprus.
  • Income from employment undertaken outside Cyprus is exempted from Cyprus income tax, provided that the employment undertaken outside Cyprus exceeds 90 days per tax year.

Under the 183-day rule, Cyprus tax residents are not affected by this new amendment.

Individuals who do not qualify as Cyprus tax residents under the 183-day rule now have the opportunity to consider the 60-day rule, which took effect on January 1 2017.

Satisfying 60-day rule

Individuals who can satisfy the 60-day rule should now consider registering as Cyprus tax residents and rent or buy residential property in Cyprus. Alternatively, individuals who do not satisfy the aforementioned criteria and are not subject to tax in any state should consider the possibilities of registering in Cyprus as tax residents under the 60-day rule.

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For further information on this topic please contact Angelos Paphitis at A G Paphitis & Co by telephone (+357 25 73 10 00) or by email (angelos.paphitis@agplaw.com). The A G Paphitis & Co website can be accessed at www.agplaw.com.