Cyprus Tax Residency for Physical Entities

In our previous article called “Tax Optimization and Immigration to Europe” we have explained why competent tax planning is so important in the modern world and briefly touched upon some ways of its implementation. Today we would like to elaborate on the Cyprus tax system.

Cyprus has long enjoyed great popularity as a country with favorable tax conditions for corporate structures, whereby a holding, investment and trading companies are registered and operate in this country. In addition to attractive tax conditions for companies, Cyprus is also famous for one of the most favorable tax regimes for individuals.

Cyprus tax advantages

0% taxation for a number of income categories, including:

*dividends

• income from securities transactions
• interest income

Other types of income are subject to preferential tax rates, or a high threshold for the minimum amount subject to taxation is applied. Moreover, Cyprus tax system provides for the possibility of various tax deductions.

Tax reforms in Cyprus

Until 2015 a 17% defense tax in Cyprus was mandatory, which largely offset the benefits of preferential tax rates. However, in 2015 a special non-domicile tax regime was introduced as part of the tax reform, which exempts taxpayers from the obligation to pay defense tax. Persons who have not been tax resident in Cyprus for at least 17 of the last 20 years are eligible for a non-domicile tax residency status.

In 2016 the tax reforms continued and important changes were introduced, including a property tax reduction in 2016 and its complete abolition in 2017, as well as property transactions tax rate double reduction, which was originally intended as a temporary (until 2017) measure, but remained in the legislation of the country, becoming an attractive factor in real estate investments.

In addition to low income tax rates, abolition of the property tax and reduction of tax rates on real estate transactions, Cyprus has a number of other tax benefits, including a reduced VAT rate on the purchase of real estate in the primary market.

How to Become a Cyprus Tax Resident

All these benefits become available to Cyprus tax residents. As a rule, the main condition for considering an individual a tax resident is his/ her presence in the country for at least 183 days a year. There are additional grounds for recognition of tax residency, such as the presence of the center of vital interests (registered office) in the country. However, Cyprus citizens can obtain tax resident status without the obligation to stay in the country for at least 183 days.

Obtaining Cyprus citizenship as part of the investment programme offers investors all the advantages of the Cyprus tax system, allowing a legal way to optimize and minimize the tax burden, while being officially recognized as a tax resident of a EU member state. Often, the benefits of changing tax residency exceed the potential returns on real estate investments or other investment instruments in Cyprus.