Cyprus: Tax Incentives For Expatriate And High Net Worth Individuals Relocating To Cyprus (In Russian)

INTRODUCTION

In the context of changes in the international system of taxation of the company in the choice of jurisdiction for the implementation of operational activities closely fit to the question of economic feasibility, to protect their interests.

The strategic location of Cyprus, the presence of the country’s full membership in the EU, competitive tax rate on corporate income, highly educated staff and active business environment make Cyprus the ideal country for business.

In addition, the Cypriot law provides a number of benefits on income of individuals. These benefits are designed to help multinational companies to provide moving their leading experts to carry out activities in Cyprus. Benefits are also available to individuals with high income who consider Cyprus as a jurisdiction for further accommodation.

We offer you an overview of the taxation of natural persons in Cyprus, as well as the description of the main advantages for foreign individuals who would like to live in this country.

Taxation of individuals

Taxes paid by individuals

In Cyprus, there are the following types of taxes and fees paid by individuals on their income:

• income tax on individuals;
• deductions for social security and other payments from the income derived from employment;
• contribution to the defense fund payable on dividends, interest, as well as the lease of property;
• capital gains tax payable on the sale of real estate Cyprus.

Taxes on income and / or contribution to the defense fund is determined by the status of the tax residency in Cyprus and the availability of permanent residence in this country.

The latter criterion is new in the tax legislation of Cyprus.

Tax residency

Cyprus tax residents are considered to be individuals who are on the territory of Cyprus for at least 183 days during the tax year.

Permanent location

Permanent residence (domicile) a natural person is considered to be a permanent residence of the person’s father, received at birth or place of residence, their own favorites. Thus, a person whose father is not a Cypriot by birth, but a permanent resident in Cyprus is considered to be a person who does not have permanent residence in Cyprus. In addition, these persons can be considered as persons with a permanent place of residence in Cyprus, if they are Cypriot tax residents for at least 17 years of the last 20 years preceding the fiscal year. Under certain conditions, a natural person, whose father is a person of Cypriot origin resident in Cyprus can be considered a person who has no permanent residence in Cyprus.

Taxable income

Whether permanent residence in Cyprus natural person who is a tax resident is taxed on its worldwide income, with the possibility of an exemption from the tax certain types of income.

Tax resident who does not have permanent residence in Cyprus, shall be exempt from payment of a contribution to the defense fund and the tax on income derived from interest and dividends.

Individuals who are not tax residents pay income tax, which are charged or received from sources in Cyprus, and are exempt from paying a contribution to the defense fund and the tax on income derived from interest and dividends.

The tax rates on personal income

The taxable income of an amount not exceeding 19 500 euro, is exempt from paying income tax. The taxable income exceeds the specified amount, is subject, in accordance with a progressive scale of tax rates ─ from 20% to 35% (for income over 60 thousand. Euros).

MAIN TAX BENEFITS FOR FOREIGN INDIVIDUALS

Exemptions from income tax, provided in the case of relocation of individuals – foreign nationals to work in Cyprus

Regardless of tax residency status and the presence of permanent residence in Cyprus, physical persons – foreign citizens who move to Cyprus, are entitled to receive one of the following tax benefits in respect of income from employment:

•  produce 50% of the remuneration for labor activity in Cyprus, carried out by an individual who before the start of his career in Cyprus is a resident of another country. This exemption is valid for five years * in the first year, which began implementation of the employment, provided that the annual income derived from such activities, more than 100 thousand. Euro;
• get 20% of the remuneration for their work in Cyprus or 8550 euros (depending on whichever is lower), carried out by an individual who prior to the implementation of the employment was a resident of another country. This exemption is valid for three years *, with effect from 1 January of the year following the year of commencement of employment in Cyprus.

* It is expected that the duration of benefits will be increased in the first case from five to ten years, and the second – from three to five years.

Exemption from tax on income in respect of work carried out outside Cyprus

The remuneration for services rendered outside Cyprus for the benefit of the employer who is not a resident of Cyprus, or in favor of a foreign permanent establishment of a resident employer for more than 90 days in a tax year is exempt from income tax.

Low rates of social security contributions

Workers and employers pay social security contributions, respectively, at rates of 7.8% and 9.5% in relation to total income from work, taking into account the maximum fixed amount of income from which contributions are paid. In addition, employers pay an additional fee of 2% of the total income earned by workers for the implementation of work. Exemption from payment of contributions to the Social Security Fund of Cyprus may be granted for a specified period to citizens of other EU countries, who are beginning to carry out labor activity in Cyprus and which is subject to certain requirements.

Exemption from tax on income received in the form of dividends and interest

Regardless of the tax status of individuals who do not have permanent residence in Cyprus are exempt from payment of a special contribution to the defense fund and the tax on income received in the form of dividends and interest. Exemption from tax on income from the sale of investments Proceeds from sale of shares, bonds and other similar financial instruments (including options and rights under such options) are exempt from tax.

The zero / reduced withholding tax rate of income abroad

Cyprus has concluded more than 55 international agreements on avoidance of double taxation, which provide a zero or reduced rate of tax withheld at source on dividends, interest, royalties, pensions derived from sources abroad.

Exemption from tax on the lump-sum payment provided at retirement, and special tax treatment of retirement income abroad

Lump sum payments provided for retirement are exempt from taxation. In addition, individuals who are tax residents of Cyprus who receive pension income for services rendered abroad can elect to be taxed at a flat rate of 5% for amounts exceeding the value of 3420 euros per year.

Exemption of income derived from the sale of real estate from capital gains tax

Revenues from the sale of real estate located outside Cyprus are exempt from capital gains tax. In addition, a separate tax exemption on capital gains is set for income from the sale of real estate located in Cyprus, acquired in the period from 16 July 2015 on 31 December 2016.

Taxes on inheritance and gift tax on wealth

In Cyprus, there is no inheritance tax, wealth tax or gift tax.

Example calculation of tax liabilities NATURAL PERSON

To demonstrate the quantitative benefits of the Cyprus tax for the respective individuals – foreign nationals who move to live in Cyprus, we offer an example of calculating the tax liability of the tax resident of Cyprus, which has no permanent residence in Cyprus, which carries out labor activities in Cyprus and receives income from investments as well as capital gains from the sale of real estate.

* Revenues from the sale of real estate located outside Cyprus, or from the sale of property situated in Cyprus, which was acquired in the period from 16 July 2015 on 31 December 2016.

For an individual with the above characteristics of liabilities for taxes and contributions on income from employment will be around 20 thousand. Euro. Investment income of such individual will be fully exempt from taxes and contributions in Cyprus.

ADDITIONAL INFORMATION

When planning to move to Cyprus individual should receive individual advice on tax issues both in Cyprus and on taxation in other countries (if any) associated with such a move.