A. INTRODUCTION
Since 2004, Cyprus is a full Member State of the European Union. This fact, along with its good
strategic location, excellent infrastructure, reliable communications, relatively low cost of living,
sound and stable legal system, warm climate and hospitality of its people, are some of the
advantages which contribute to Cyprus’ continuous development as a competitive international
financial, tourist and retirement centre.
The Government of Cyprus has for many years implemented policies to attract foreign
investments and foreigners to Cyprus. One of the most important policies is the negotiation and
implementation of double tax treaties that regulate taxation of both companies and individuals
residents of the contracting states.
We present herein below an outline of the main tax issues that an individual wishing to
immigrate or retire in Cyprus will encounter. We also deal with succession issues once the
person dies in Cyprus.
This outline does not deal with the tax aspects applicable to legal bodies but refers only to
physical persons. For relevant information on legal bodies kindly refer to our publication,
“Cyprus Tax Legislation on Companies (The Foreign Investors’ Approach)”.
B. TAXATION IN GENERAL
The Cyprus tax system imposes taxes only to tax residents of Cyprus. Tax resident of Cyprus, in
the case of a physical person, means any individual who resides in Cyprus for one or more
periods which exceed in total 183 days in the financial year.
C. INCOME TAX
All Cyprus tax residents, as identified above, either Cypriots or foreign nationals, are taxed in
Cyprus on all their worldwide income accrued or derived from all sources in Cyprus and abroad.
With the above in mind a foreigner who would like to immigrate to Cyprus, under any status,
such as employment, visitor, retirement or student, once is staying in Cyprus for more than 183
days becomes a tax resident of Cyprus and his / her worldwide income is subject to taxation
according to the tax rates, deductions and exceptions of the Laws of Cyprus, as identified below.
Individuals who are not tax residents of Cyprus are taxed on income accrued or derived only
from sources in Cyprus, if any.
C.1 Individual Tax Rates
The following tax rates apply for physical persons who are tax residents of Cyprus:
Taxable Income Tax Rate Tax Amount Accumulated Tax
Euro %
0-19.500 0 NIL NIL
19.501 – 28.000 20 1.700 1.700
28.001 – 36.300 25 2.075 3.775
Over 36.300 30
C.2 Tax Deductions
The following are deductible from a physical person’s taxable income:
a) Contributions to trade unions or professional bodies All
b) Loss of current or previous years in respect of taxable income All
c) Rental income 20% of rental income
d) Donations in approved charities All
e) Expenses for the maintenance of a building in respect of which there is a preservation order Subject to the area of the building.
f) Social insurance contributions, life insurance premiums and contributions in approved provident funds, pension funds or medical funds up to the 1/6 of the chargeable income prior to the deduction of the relevant contributions
Note: In the case of life insurance, the life insurance must be for the benefit of the taxable
person and not for his / her spouse.
The allowable deductions on the annual premiums for life insurance are restricted to 7% of the
insured amount.
C.3 Tax Exemptions
The following type of income of physical persons is exempt from income tax:
a) Interest
The whole amount of passive interest received or credited is exempt from income tax.
Passive interest – Is the interest which is acquired not in the execution of any trade but such as
in fixed deposit bank accounts.
There is 10% special defence contribution tax on passive interest. For further details refer to
section E below concerning special defence contribution tax on interest.
Trading interest – Is the interest which is acquired from the ordinary activities of the person or
is closely related to his / her business.
Trading interest is liable to income tax, as per the tax rates referred to in Section C.
b) Dividends
The whole amount of dividend income is exempt from income tax.
There is 15% withholding tax as special defence contribution tax on dividends received by tax
residents. For further details refer to section E below concerning special defence contribution tax
on dividends.
c) Lump sum received by way of retiring gratuity, computation of pension or compensation for death or injuries.
The whole amount of such lump sum is exempt from income tax.
d) Capital sums accruing to individuals from any payments from approved funds (e.g. provident funds) or other funds or a lump sum from life insurance.
The whole amount of such capital sums is exempt from income tax.
e) Profits from the sale of titles i.e. shares, bonds, debentures, founders’ shares and other titles of companies or other legal persons, incorporated in Cyprus or abroad and options thereon.
The whole amount of such profit is exempt from income tax.
If a non listed company whose shares are being sold is the owner of immovable property
situated in Cyprus then there is capital gains tax at the rate of 20% on net profit calculated in a
particular way as specified in the relevant law. For more details refer to section G below
concerning capital gains tax.
The above provision does not apply to listed companies whose shares are traded on the Stock
Exchange.
f) Income from the provision of salaried services abroad for a total number of more than 90 days to an employer who is not a tax resident of Cyprus or by employment by a permanent establishment abroad of an employer who is a tax resident of Cyprus .
The whole amount of this salary income is exempt.
g) Income of a person from employment in Cyprus who was not tax resident of Cyprus before his / her employment.
A rate of 20% (up to a maximum of Euro 8.550) of the remuneration received from any position
or employment exercised in Cyprus by an individual who was resident outside Cyprus prior to
the commencement of his employment, is exempted from taxation.
The exemption applies only for a period of 3 years as from the 1st January of the year that
follows his / her employment in Cyprus.
D. TAXATION OF PENSIONS
Pensions are taxed as an independent category of income and are not liable to the income tax
rates mentioned above in Section C.
The income of any individual from a foreign pension which exceeds Euro 3.420 is taxed in
Cyprus at the flat rate of 5%. Irrespectively of the amount of the pension, the first Euro 3.420
are tax free.
A person may however, elect to be taxed at the normal tax rates as identified above in section
C. The option to be taxed either at 5% per annum or according to the normal tax rates can be
exercised every year.
Sometimes special provisions as to the taxation of pensions are found in Double Tax Treaties, a
subject that one must examine before immigrating and retiring to Cyprus.
Cyprus has a wide network of Double Tax Treaties which makes it an efficient vehicle for
international tax planning. Currently Cyprus has active Double Tax Treaties with the following
countries:
Armenia*, Austria, Belarus, Belgium, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt,
France, Greece, Hungary, Ireland, India, Italy, Kuwait, Lebanon, Malta, Mauritius, Moldova,
Montenegro**, Norway, Poland, Qatar, Romania, Russia, San Marino, Serbia**, Seychelles,
Singapore, Slovakia, Slovenia**, Sweden, South Africa, Syria, Tadzhikistan*, Thailand,
Ukraine*, United Kingdom, U.S.A.
* The treaty between Cyprus and USSR still applies;
** The treaty between Cyprus and Yugoslavia still applies.
These double tax treaties may allow for the payment of pension tax in only one of the two
contracting states. This may prove to be beneficial if an individual resides in Cyprus and by
virtue of the double tax treaty is benefited by paying tax only on the pension received according
to Cyprus law at 5% rate instead of a higher rate (for sums over Euro 3.420) in his home
country.
A good example of this advantage is the treaty between Cyprus and the United Kingdom.
Kindly also refer to section K of this publication concerning the Unilateral Tax Credit Relief.
Other Income of pensioners/retirees in Cyprus
It is important to stress that once the retired person becomes a tax resident of Cyprus i.e.
staying in Cyprus for more than 183 days during the financial year, any other income he / she
has apart from his / her pension income, such as income from general trading or employment or
interest or dividend is taxed according to the general rules of taxation as any other tax payer of
Cyprus, subject to the deductions and exceptions provided by the law herein above specified.
E. SPECIAL DEFENCE CONTRIBUTION TAX
This special tax is imposed on:-
earned by Cyprus tax residents.
Non-tax residents of Cyprus are totally exempt from this special type of taxation.
Tax rates for Special Defence Contribution Tax
Tax credit relief is granted if on the particular income, taxation has already been paid abroad, as
will be explained further below in section K concerning Unilateral Tax Credit Relief.
Use of a Cyprus International Trust
The use of a Cyprus International Trust which is set up as a pre-immigration step is (before
immigrating to Cyprus) under careful tax planning and subject to the facts of the case might
offer reasonable solutions to exempt such income from the special defence contribution tax.
On the trust aspect and its use, kindly refer to section L below.
F. IMMOVABLE PROPERTY TAX
According to the law, an acquisition by an alien of immovable property situated in Cyprus is
allowed only if a relevant permit from the District Officer of the district where the property is
situated is obtained.
The Cyprus Government has lifted all the restrictions as to the acquisition of immovable
property in Cyprus by European Union nationals and EU nationals are able to acquire without
any restrictions immovable property in Cyprus.
For more details on this issue kindly refer to our publication, “Acquisition of Immovable Property
in Cyprus”.
Immovable property tax is imposed on the market value of the property as at 1 January 1980
and applies to the immovable property owned by the taxpayer on 1 January of each year. This
tax is payable on the 30 September of each year.
Natural and legal persons are both liable to immovable property tax.
The tax rates are the following:
Property value Rate Accumulated Tax
as at 1.1.1980
€ ‰ (per thousand) €
Up to 170.860 NIL NIL
170.861 – 427.150 2,5 641
427.151 – 854.300 3,5 2.136
over 854.300 4
G. CAPITAL GAINS TAX
There is a 20% tax on gains from the disposal of immovable property situated in Cyprus,
including gains from the disposal of shares in non- listed companies owning immovable property
in Cyprus. Disposal of shares of listed companies does not impose any capital gain tax even if
the listed company owns immovable property in Cyprus.
The taxable gain is estimated taking into consideration various factors as is specified in detail in
the relevant capital gains law.
A person is thus not liable to payment of capital gains tax on the sale of shares of a company
provided that the company does not own immovable property situated in Cyprus.
Any profit made from the sale of immovable property abroad is not taxable in Cyprus. This
means that residents of a country that does not impose capital gains tax to non-residents may
benefit from selling property after immigrating to Cyprus and upon acquiring tax residency in
Cyprus.
The following are exempt from capital gains tax:
a) Transfers arising on death.
b) Gifts made from parent to child or between husband and wife or between relatives up to
the third degree.
c) Gifts to a limited liability company where the company’s shareholders are members of the
donor’s family and the shareholders continue to be members of the donor’s family for five years
after the day of the transfer.
d) Gifts by a limited liability company to its shareholders, whose shareholders belong to the
same family, provided such property was originally acquired by the company by way of
donation/gift. The property must be kept by the donee for at least three years.
e) Gifts to charities and the Government.
H. WEALTH TAX
There is no wealth tax imposed in Cyprus.
I. INDIRECT TAX
Types of indirect taxes include VAT, excise tax and customs duty (import duty and export duty).
VAT is imposed:-
a. on the provision of goods or services in Cyprus;
b. on the acquisition of goods in Cyprus from other Member States;
c. on the importation of goods in Cyprus from any place outside the EU countries.
The supplies are those made by a taxable person in the course of his / her business. It does not
include supplies exempted by the VAT Law.
VAT Current Rates
The current VAT tax rates are the following: -
There is also a category of exempted goods and services on which no VAT is charged.
For more details on VAT issues kindly refer to our publication, “VALUE ADDED TAX - VAT (The
international Investors’ Approach)”.
J. INHERITANCE TAX AND SUCCESSION LAW
Tax
There is no inheritance tax imposed in Cyprus.
Succession law
The succession law is rather complicated and one immigrating to Cyprus and acquiring property
must be aware of these provisions. These are explained in summary below.
Death without leaving a will Movable property
Succession to movable property is governed by the law of the domicile.
Domicile is a legal term related to the law of a person which designates which law – jurisdiction
governs certain legal questions in relation to a person such as inheritance or the validity of a
will. Usually domicile is the place one person normally and permanently resides. It is mainly
acquired by birth, called Domicile of Origin and secondly, by choice, called Domicile of Choice.
The law of the domicile will govern the law of inheritance applicable on the death of a person
and the matrimonial law governing the property of a married couple wherever that property
may be.
Succession to movable property of persons dying in Cyprus but not domiciled in Cyprus, shall be
regulated by the law of their domicile i.e. the law of the country in which they have their
domicile at the time of their death.
Succession to movable property of persons dying in Cyprus and domiciled in Cyprus, shall be
regulated by the law of their domicile i.e. the law of Cyprus which is the country they had their
domicile at the time of their death.
For the purposes of succession law no person can have more than one domicile.
Immovable property
In case of immovable property, the law of the “situs”, i.e. the law of the country where the
immovable property is situated, applies. In this respect, if the deceased’s estate consists of
immovable property in Cyprus, then the Cyprus law applies in respect of this immovable
property.
Death and leaving a will
The right of persons to dispose of their estate is not absolute. The disposal of one’s estate by
will is restricted to a part of the estate known as the disposable portion. This disposable portion
is ascertained at the time of death of the person and not at the time of drawing up the will.
According to these strict provisions of the succession law, if the deceased has heirs at the time
of his / her death such as a spouse and/or child (including grandchild, great-grandchild etc)
and/or parent(s), then only a certain percentage of his / her property can be disposed of by will.
For the rest of the property the mandatory provisions of the law such as to the distribution of
the property among heirs apply.
The above restriction and possibility of disposing only part of the property by will, does not
apply in the case of persons born in the United Kingdom or where their father was born in the
United Kingdom or in any state which is a member of the Commonwealth, regardless of whether
these persons are domiciled in Cyprus or not and regardless whether such persons are Cypriot
nationals or foreign nationals. Consequently, the above persons may dispose the whole of their
movable or immovable property by will as they want.
Further, there is another strange provision of the succession law which provides that an alien
may dispose of his / her movable property by will as he / she wishes.
For the purposes of the succession law, an alien is a person who is not a citizen of Cyprus but it
does not include an alien who was born in Cyprus at the time when his / her parents had having
their habitual residence in Cyprus.
These provisions of the law, allowing different treatment of people based on their nationality
seems to be contrary to the European law whereby discrimination on grounds of nationality is
prohibited.
Irrespectively of the above observation, as the law stands today, in case of the disposal of
property with a will the below apply:-
Trusts and wills – Strict provisions of succession laws
The strict provisions of the succession laws of any country can be overcome, after careful tax
planning with the creation of an International Cyprus Trust. In such a case the terms of the trust
deed creating the trust apply as to the disposition of the trust property and not the succession
laws of the country in the case of the death of the settlor.
On this subject please refer further to section L below.
K. UNILATERAL TAX CREDIT RELIEF
Tax credit is granted in Cyprus for any tax paid on the particular income abroad. This applies
also to income tax and special defence contribution tax.
The tax credit is possible either by the provisions of the unilateral tax credit relief provided
specifically in the income tax law of Cyprus or by the provisions of the double tax treaties which
might be applicable for the particular case.
Special reference is made to those double tax treaties which provide the following :- “subject to
the provisions of Cyprus Tax Law regarding credit of foreign tax, there shall be allowed as credit
against Cyprus tax payable in respect of any item of income derived from ……{Foreign
Contracting State}”.
Further, some of the treaties referring particularly to dividends, have the following provision:-
“where such income is a dividend paid by a company which is resident of ……{Foreign
Contracting State} to examine a company which is a resident of Cyprus the credit shall take into
account (in addition to any….. {Foreign Contracting State} tax on dividends) the …… {Foreign
Contracting State} tax payable in respect of its profits by the company paying the dividends”.
In effect, the local tax paid by the foreign company on its income is given as tax credit in Cyprus
to the tax payer in Cyprus.
This is crucial as if the tax paid abroad by the foreign company which pays the dividend to the
individual now resident of Cyprus, is more than 15%, then there will never be any taxation paid
in Cyprus in respect of this income received in Cyprus by the individual as dividend income.
L. USE OF TRUSTS FOR TAX PLANNING PURPOSES
Tax exposure under any type of taxation may be reduced by use of an offshore trust or a Cyprus
International Trust (CIT) at the appropriate time and especially as a pre-immigration tax
planning before immigrating to Cyprus.
One must consider this possibility before immigrating to Cyprus as the benefits in the case of
establishing a CIT exist while the person setting the trust is a non resident of Cyprus. The
subsequent immigration does not affect its validity and the benefits are granted provided the
conditions of the law are met.
Cyprus international trusts are regulated by the International Trusts Law of 1992, which
provides that the income and profits of an international trust derived or deemed to be derived
from sources outside Cyprus are entirely exempt from any tax imposed in Cyprus, including
income tax, or special defence contribution tax.
The use of a Cyprus International Trust might also be a successful vehicle in overcoming the
strict provisions of succession laws in the country of domicile of the deceased by creating on
time a relevant trust and transferring the property in the name of the trustees under the terms
of the trust deed.
Careful tax planning must be made subject to the particular facts of each case.
For more details on this issue kindly refer to our publication, “The Cyprus International Trust”.
M. CONCLUSION
Immigrating to any country is not an easy decision to make; various considerations must be
taken into account. With this publication we try to give a brief outline of the possible tax aspects
and effects of such immigration on the income of individuals.
With careful pre-immigration tax planning an adverse taxation effect might be reduced or even
extinguished.
One though must consider very carefully its personal aspects and factual situation and decide on
the appropriate tax planning steps.
N. Disclaimer
This publication has been prepared as a general guide and for information purposes only. It is
not a substitution for professional advice. One must not rely on it without receiving independent
advice based on the particular facts of his/her own case. No responsibility can be accepted by
the authors or the publishers for any loss occasioned by acting or refraining from acting on the
basis of this publication.
February 2010
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