This article will examine setting up tax residency in Cyprus, why it can be beneficial, and the application process.
Does going offshore and finding a more favorable tax regime sound like a good idea? Cyprus offers no capital gains tax and no wealth or inheritance taxes.
At Nomad Capitalist, we help entrepreneurs and investors with asset protection by creating holistic plans. Contact our team if you’d like our expert advice.
Simply put, due to its favorable tax regime. There is no capital gains tax on assets other than immovable property located in Cyprus. No wealth or inheritance taxes.
But the main advantage of Cypriot Tax Residence is so-called non-domiciled taxation. In simple terms, the non-domiciled Cyprus tax residence status means you’re exempt from being taxed on income from dividends, interest, and rental income, independent of location source.
Income from employment carried out outside Cyprus is exempted from Cyprus income tax, provided that the employment exercised outside Cyprus exceeds 90 days per tax year. This will require proper structuring of your business structure to be sure not to trigger unwanted Permanent Establishment or CFC rules.
And the best thing about Cyprus Tax residence and non-domiciled taxation is that this regime is valid for 16 years.
As well as the relevant legislation offering unilateral relief from international double taxation, Cyprus has agreed on double taxation treaties with more than 60 countries to avoid double taxation.
Tax Residency in Cyprus
Would becoming a Cyprus tax resident work for you?
Cyprus counts you as a tax resident if you:
- Spend 183 days in Cyprus
- Spend 60 days in Cyprus under the condition that you:
- Do not spend more than 183 days a tax year in any other country.
- Are not tax resident anywhere else.
- Carry out any business in Cyprus and/or be employed in Cyprus and/or hold an office (director) of a company tax resident in Cyprus at any time in the Cyprus tax year, provided that it is not terminated during the tax year, and
- Maintain in the tax year a permanent residential property in Cyprus which is either owned or rented by you.
Cyprus Tax Residency Application Process
Here are the steps to becoming a tax resident of Cyprus.
Applying to Become a Cyprus Tax Resident By Company Formation
If you are unable to spend 183 days in Cyprus and the 60 days rule suits you more due to your busy schedule, then forming a company in Cyprus is a mandatory requirement.
There’s no need to worry about transferring all your business activities to Cyprus. In fact, we don’t recommend you transfer anything near the majority if your current business structure is tax optimized.
However, Cyprus has a decent corporate tax system and one of the lowest tax rates in the whole of the EU. If you would like to know more about Cyprus residence by investment, contact our team, and let us help you go where you’re treated best.
In terms of forming a company, you are going to provide the following, however:
- Name of the company to check its availability.
- Name, ID/Passport number, birth dates, jobs, and full address of the directors, secretary, and shareholders of the company.
- Purpose and activities of the company.
Once you have prepared these documents, the next steps are to:
- Form a Cypriot company and hire yourself as a director. You will need to pay yourself a salary and make mandatory social contributions.
- Obtain a Social Security Number and open a corporate bank account in Cyprus, which can take up to three months.
- Transfer at least €41,000 to the bank account to satisfy Cyprus immigration laws.
- Apply in person for the employment permit and temporary residence at the Civil Registry and Migration Department.
- Wait up to six months for approval.
For EU and non-EU citizens, becoming a tax resident in Cyprus is the same process. However, there are differences between obtaining residency and work permits. EU citizens are not required to obtain special permits to live in Cyprus, while non-EU citizens need to obtain the right visa and permit.
If an individual has paid all their taxes, they can obtain a tax certificate from the Cyprus Tax Office to show to other countries. To obtain this certificate, they need to apply through the relevant channels.
Tax Residency in Cyprus FAQ
What Are the 60-Day Rule and the 183-Day Rule?
Under the Cyprus Income Tax Law, there are only two ways to become Cypriot tax residents, either by the 60-Day Rule or the 183-Day Rule. A tax resident of the Republic of Cyprus is an individual residing in the Republic for one or more periods totaling more than 183 days, the 183-day rule, within a tax year, and an individual who meets the conditions under the 60-day rule (for every tax year).
The conditions for the 60-day rule are that the Cyprus tax resident person:
- Resides in Cyprus for one or more periods for an aggregate of at least 60 days.
- Does not reside in any other single state for one or more periods that exceed 183 days in total.
- Is not considered tax resident by any other state for the same tax year.
- Carries out business in Cyprus, and/or is employed in Cyprus and/or holds office (i.e., directorship) in a company tax resident in Cyprus until 31 December of every tax year).
- Maintains a residential property in Cyprus, either owned or rented.
How are the days calculated for the ‘183-day rule’ and the ‘60-day rule’?
For the purposes of both the ‘183-day rule’ and the ’60-day rule” days in and out of Cyprus are calculated as follows:
- the day of departure from Cyprus counts as a day of residence outside Cyprus.
- the day of arrival in Cyprus counts as a day of residence in Cyprus.
- arrival and departure from Cyprus on the same day counts as one day of residence in Cyprus.
- departure and arrival in Cyprus on the same day counts as one day of residence outside Cyprus
What Does Non-Domiciled Status Entail?
For this tax residency status, you need to obtain a unique tax number from the Tax Department. This tax number comes in very handy when opening bank accounts.
You also need to prove that you are not Cypriot by descent by sharing the birth certificates of your parents.
As a company director, you must pay 8% of your employer-based income to National Insurance.
Additionally, your profits from Cypriot company will be subject to the standard corporate tax rate is 12.5%, although start‐ups can pay less. But remember, we said that in the case of having a tax residence in Cyprus, your main operating business should be outside of Cyprus.
You are exempt from any income tax (provided you take dividends instead of salary) you’ve earned working for a Cypriot company for 17 years under the country’s income tax law.
Where in the World Is Cyprus?
Is Cyprus Part of Europe or Asia?
Geographically, Cyprus forms part of Asia but is an EU member state. Cyprus lies south of Turkey and west of Lebanon.
Do They Speak English in Cyprus?
Yes. Greek and Turkish are the official languages. However, Cyprus was ruled by the UK before becoming independent from Britain in 1960, and English is spoken. The country also has a Common law-based legal system.