In this article, I will discuss some of the benefits of Cyprus for living and for tax optimization. I will also share some of the typical cases I see where Cyprus is used in a tax optimization (and also lifestyle optimization) context.
Cyprus is known as a nice place; it’s a sizeable island in the Mediterranean, which means you can expect:
- A beautiful and diverse environment: live and work in a stunning Mediterranean setting, with beautiful beaches, rugged mountains, and picturesque villages.
- Safe and secure living: Cyprus is known for its low crime rates and high safety standards, making it an ideal choice for remote workers seeking a secure environment.
- Affordable cost of living: Despite its many attractions, Cyprus maintains a relatively low cost of living compared to other European countries.
- High-speed internet and modern infrastructure: Cyprus has invested significantly in its telecommunication infrastructure, offering high-speed internet access and reliable mobile networks throughout the island.
- Rich history and culture: Cyprus boasts a fascinating history, with influences from various civilizations that have left their mark on the island’s architecture, cuisine, and traditions.
- Strategic location: Cyprus’s geographic position at the crossroads of Europe, Asia, and Africa makes it a convenient base to explore nearby destinations.
- Warm and welcoming community: Cypriots are known for their hospitality and friendly nature, ensuring a warm welcome for digital nomads.
Beyond being a nice place to live, it has some very interesting tax benefits. Here are some interesting facts about the Cypriot tax code:
- Low corporate tax rate: Cyprus has a relatively low corporate tax rate of 12.5%, making it attractive for companies looking to reduce their tax liabilities.
- Holding companies: Cyprus is an ideal location for establishing a holding company. Dividend income received by a Cyprus holding company from qualifying subsidiaries is generally exempt from taxes. Additionally, Cyprus does not levy withholding tax on dividend payments to non-resident shareholders.
- Intellectual property (IP) regime: Cyprus has an attractive IP tax regime that offers an 80% tax exemption on qualifying profits generated from the use, sale, or licensing of IP assets. This results in an effective tax rate of around 2.5% on IP-related income.
- Double taxation treaties: Cyprus has a wide network of double tax treaties with over 60 countries, which can help minimize tax liabilities by reducing or eliminating withholding taxes on dividends, interest, and royalty payments.
- No controlled foreign company (CFC) rules: Cyprus does not have any CFC rules in place, making it easier for businesses to establish and manage subsidiaries in other jurisdictions without facing additional tax consequences.
- Re-domiciliation provisions: Cyprus allows companies incorporated in other jurisdictions to re-domicile to Cyprus, potentially benefiting from the country’s favorable tax regime.
- No capital gains tax (except for immovable property): Capital gains derived from the sale of securities, such as shares or bonds, are generally exempt from taxation in Cyprus, except for gains derived from the sale of immovable property situated in the country.
Who is Cyprus For?
Given some of the advantages Cyprus offers, these are the most common types of people and setups that involve Cyprus:
- Stock traders and investors
- High Net Worth Individuals (the Non-Dom scheme)
- Corporate setups (12.5% tax)
- Digital Nomads
A Haven for Stock Traders and Investors
Cyprus is obviously an attractive location for stock traders due to the absence of taxation on the sale of securities.
This includes shares, bonds, debentures, options, and other financial instruments. Profits realized from trading these securities are exempt from capital gains tax in Cyprus, as long as the income does not arise from the disposal of immovable property situated in Cyprus or from the disposal of shares in companies that own immovable property in the country.
It is important to note that the tax exemption applies to both residents and non-residents of Cyprus. This means that foreign stock traders can also benefit from the absence of capital gains tax on security sales, provided they meet the necessary requirements and comply with relevant regulations. Typically, foreign stock traders can do this by establishing a Cyprus-based company to carry out their trading activities. Since Cyprus does not impose capital gains tax on the sale of securities, any gains derived from the sale of securities (such as shares, bonds, or options) will not be subject to capital gains tax. These tax-free gains would then be included in the company’s net trading profits, which would then be subject to the 12.5% corporate tax rate.
High Net Worth Individuals – The Non-Dom Scheme
The Cyprus Non-Dom scheme refers to a set of tax incentives designed to attract high-net-worth individuals (HNWIs) and professionals to Cyprus by offering favorable tax treatment for individuals who become tax residents but are considered non-domiciled in the country. The non-domicile status provides substantial tax benefits for those who qualify, making Cyprus an attractive destination for HNWIs and expatriates. This programme is similar to others in place around Europe, the most well-known of which is the Portuguese NHR.
Key aspects of the Cyprus Non-Dom scheme:
- No tax on dividends and interest income: Non-domiciled individuals are exempt from Special Defense Contribution (SDC) tax, which is levied on dividend and interest income for Cyprus tax residents. This means that non-doms can receive dividend and interest income from both local and foreign sources without being subject to tax in Cyprus.
- No capital gains tax on the sale of securities: As mentioned earlier, Cyprus does not impose capital gains tax on the sale of securities, such as shares, bonds, or options, for both residents and non-residents. This exemption also applies to non-domiciled individuals, making the country attractive for investors and traders.
- Low personal income tax rates: Cyprus offers competitive personal income tax rates, with progressive rates ranging from 0% to 35%. Non-domiciled individuals can benefit from these rates while enjoying the exemptions on dividends and interest income.
- 50% exemption for high earners: Individuals who were not Cyprus residents before commencing employment in the country and have an annual income exceeding €100,000 from their employment in Cyprus may be eligible for a 50% exemption on their income for up to 10 years.
- 183-day rule for tax residency: To become a Cyprus tax resident, an individual needs to spend at least 183 days in the country within a calendar year. Once an individual meets this requirement, they can benefit from the Non-Dom scheme and other tax advantages available to Cyprus tax residents.
- No inheritance tax: Cyprus has abolished inheritance tax, making it attractive for wealth planning and preservation purposes.
- Extensive double tax treaty network: Cyprus has double taxation treaties with over 60 countries, which can help minimize tax liabilities on income sourced from other jurisdictions.
There is also an alternative tax residency rule, commonly known as the “60-day rule,” which can apply to non-domiciled individuals.
Under the 60-day rule, an individual can become a tax resident of Cyprus if they meet the following criteria in a tax year:
- Stay in Cyprus for at least 60 days (not necessarily consecutive).
- Do not reside in any other single country for more than 183 days.
- Maintain a permanent residence in Cyprus, either owned or rented.
- Carry out any business or employment in Cyprus or hold an office in a Cyprus tax resident company during the tax year.
If an individual qualifies for Cyprus tax residency under the 60-day rule, they can benefit from the Non-Dom scheme and other tax advantages available to Cyprus tax residents, such as exemptions on dividend and interest income.
Corporate Setups – 12.5% Tax
Creating a company in Cyprus is becoming an increasingly popular choice for companies looking to establish a presence in Europe. Cyprus offers a favorable tax system with a low corporate tax rate, as well as a strategic location providing access to markets both in Europe and the Middle East.
The two main types of companies in Cyprus are private limited liability companies and public limited liability companies. Private limited liability companies are the most common and require a minimum of one director and one shareholder, while public limited liability companies require a minimum of two directors and seven shareholders.
Cyprus has a low corporate tax rate of 12.5%, which is one of the lowest in the European Union (it is considered by many to be a low-cost alternative to Ireland, which has a similar corporate tax rate). This means that companies can benefit from a reduced tax burden, which can lead to increased profits and competitiveness.
In addition to the low corporate tax rate, Cyprus also offers a number of other tax benefits. For example, there is no withholding tax on dividends paid to non-resident shareholders, and no tax on profits from the sale of securities. This makes Cyprus an attractive location for companies engaged in international business and investment activities.
Another advantage of creating a company in Cyprus is the extensive network of double taxation agreements in the country. Cyprus has signed double taxation agreements with more than 60 countries, which means that companies can benefit from reduced rates of withholding tax on dividends, interest, and royalties.
Cyprus also offers a range of other tax incentives and exemptions for companies that invest in certain sectors or regions of the country. For example, companies investing in research and development can benefit from a tax incentive of up to 50% of their eligible expenses, while companies investing in renewable energy sources can benefit from a reduced corporate tax rate of 2.5%.
Finally, Cyprus has a simple and transparent tax system based on the principles of the Organization for Economic Cooperation and Development (OECD). This means that companies can benefit from a stable and predictable tax environment that will help to reduce risks and uncertainties.
Digital Nomad Program
Cyprus has also hopped onto the digital nomad bandwagon and launched a digital nomad program aimed at attracting remote workers and fostering a vibrant digital community.
Cyprus’s digital nomad program aims to provide remote workers with a temporary residence permit, allowing them to live and work in the country for up to a year. The program is designed to accommodate freelancers, entrepreneurs, and professionals working for companies based outside Cyprus. The digital nomad visa does not grant the right to work for local companies or offer any additional employment rights.
To be eligible for the Cyprus digital nomad program, applicants must meet the following criteria:
- Proof of employment or self-employment: Applicants must provide evidence of a work contract with a foreign company or self-employment status as a freelancer or entrepreneur.
- Minimum income threshold: Applicants must demonstrate a minimum monthly income of €2,000 (subject to change) from their remote work.
- Valid health insurance: Applicants must possess comprehensive health insurance that covers them during their stay in Cyprus.
- Clean criminal record: Applicants must provide a certificate of a clean criminal record from their country of origin.
- Application fee: Applicants must pay a non-refundable application fee.
The Cyprus digital nomad program thus offers an attractive opportunity for remote workers to embrace a new lifestyle in a beautiful Mediterranean setting. With its modern infrastructure, affordable cost of living, and rich cultural heritage, Cyprus could become a leading destination for digital nomads looking to work and explore the world. If you’re considering joining the growing community of digital nomads, Cyprus might just be the perfect destination for you.
As we’ve seen, Cyprus can be a very attractive place, especially if you fit into some of the typical cases I outlined above. To get the viewpoing of an expat in Cyprus, you can listen to my chat with Johannes Larsson, a friend of mine who moved to Cyprus from Malta.. As always, it’s important to get financial advice from competent people, so if you’re serious about exploring Cyprus as a potential destination for living or opening up a company, contact me and I’ll put you in touch with a good tax lawyer.