An influx of international groups has been noticed in Cyprus over the last few years, particularly in the technology and financial services (fintech, regtech, etc.) sectors. These firms set-up presence in Cyprus, relocating existing employees or attracting new ones from abroad to work in the country. This was a result of some very appealing incentives that the country offers at a corporate (such as the IP Regime) and at a personal level. The latter (personal incentives) will be briefly presented in this newsfeed. Combined with some general advantages of Cyprus, such as its geographical location, its sunny weather, the business-friendly time zone, low crime and pollution and the top quality of facilities and services, they create a very appealing proposition.
Non-Dom Regime
The concept of domiciled persons for what concerns Special Contribution for Defense (SCD) was introduced as from July 2015. Individuals who are tax residents of Cyprus but are not considered to be domiciled in the country, are exempt from payment of SCD on dividends, interest and rental income. This exemption applies for 17 years.
It should be noted that dividend and interest income earned by tax residents of Cyprus is subject only to SCD, gains on sale of shares and other securities are exempt from all taxes and Capital Gains Tax is only charged on gains on sale of immovable property situated in Cyprus. So, while the Non-Dom Regime is applicable only to SCD, it actually eliminates the only tax applicable to the most popular sources of passive income.
60-days Tax Residency Rule
This provision, which was introduced in July 2017, provides an incentive to individuals who are not tax residents in any other country for any tax year to transfer their tax residence to Cyprus, as long as they satisfy the following requirements:
- not remain in any other state for one or more periods which in total exceed 183 days in the same tax year; and
- not be a tax resident in any other state for the same tax year; and
- remain in Cyprus for at least 60 days during the tax year; and
- pursue any business in Cyprus and/or work in Cyprus and/or be a director in a company tax resident in Cyprus at any time during the tax year; and
- maintain a permanent residence in Cyprus, either owned or rented.
50% Exemption on Employment Income
The exemption applies to employment income of a non-resident person taking up residence in Cyprus to work as an employee in the country. This exemption applies for a period of 17 years starting from the first year of employment provided that the employment income of the employee exceeds €55,000 per annum. First employment in Cyprus must have commenced from 1 January 2022 onwards. Persons whose employment commenced before 1 January 2022, may also qualify for the new 50% exemption, as long as for a period of at least 15 consecutive years immediately before the commencement of their employment in Cyprus they were not residents of the country, as follows:
- persons who benefited from the 50% exemption in accordance with the provisions of the previous incentive and had continuous employment in Cyprus from the year of commencement of employment up until the tax year 2021; or
- persons whose first employment in Cyprus commenced during the years 2016 to 2021 with a remuneration exceeding €55,000 per year; or
iii. persons whose first employment in the Republic commenced during the years 2016 to 2021 with a remuneration that did not exceed €55,000 per annum and within a period of six months from 26 July 2022 the said remuneration exceeds €55,000 per annum.
The previous incentive, which applied before 26 July 2022, provided that the exemption applied for a period of 10 instead of 17 years, provided that the income from such employment exceeded €100,000 instead of €55,000 per annum.
20%/€8,550 Exemption on Employment Income
This exemption has been in effect for many years and it has been mainly targeting expatriates and Cypriots studying abroad to return to Cyprus for employment.
First employment in Cyprus should start from 26 July 2022 onwards. The exemption from Income Tax is for a period of 7 years. The following conditions must be met immediately before commencement of employment in Cyprus:
- the individual should not be resident of Cyprus for a period of at least three consecutive tax years; and
- the individual should be employed outside Cyprus by a non-resident employer.
The exemption will start in the tax year following the year of commencement of employment.
There is no requirement for the individual and/or the employer to be or become a tax resident of Cyprus in order to benefit from this exemption.
The previous incentive, applicable before 26 July 2022, provided that the exemption applied for five years instead of seven.
Other Incentives
Incentives for the Cyprus Shipping Industry
Cyprus has been a world renowned maritime center for more than 40 years and there is a very strong shipping industry in the country. This is due to many reasons, including the advantageous tonnage tax regime applicable as well as some other incentives for individuals involved in the industry, such as:
- the absence of any tax on dividends (even Special Contribution for Defense) received by any shareholder (even Cyprus tax resident individuals) of a ship owning, chartering or ship management company.
- the exemption from personal income tax on the emoluments of officers and crew of a Cyprus vessel.
Special Tax Rate for Pensioners
Foreign pensions have a very favourable status in Cyprus, involving a flat annual income tax charge of 5% for amounts exceeding €3,420 per annum. What is more, the tax payer has the right to choose to be taxed either under the special mode of taxation as stated above or at normal rates. The latter option might be more beneficial, depending on the circumstances, considering that the first €19,500 of personal income per annum is tax free.
It should be stressed that as pension income is generally treated as earned income in the country of origin, it is only by concession that a lower rate can be paid by living abroad as an expat. Such concessions are usually determined by Double Tax Treaties and Cyprus has many such treaties, which include the relevant provisions.
