The IBSA Podcasts

Understanding Cyprus: Tax Benefits, Residency Rules and Wealth Planning Insights

• Lucie • Season 3 • Episode 9

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What if relocating to Cyprus could offer you a more favourable tax regime than your current country? Learn the ins and outs of Cyprus' unique tax benefits in our latest episode featuring Alexis Christodoulou, a South African lawyer specialising in Cypriot and international tax law at Elias Neocleous & Co. We dive into the evolving political landscape in the UK and its potential tax implications, particularly for those considering a move. Alexis guides us through the 183-day rule and the more nuanced 60-day test, explaining how you can qualify as a tax resident in Cyprus and the significant advantages that come with it.

From entrepreneurs to employees and private individuals interested in tax and wealth planning, this episode is packed with valuable insights. Understand how Cyprus compares to other countries offering similar tax benefits, and how its tax residency rules could benefit you. With over 15 years of experience having an office in Cyprus, our host Roy Saunders, founder and chairman of the International Business Structuring Association, shares his firsthand knowledge of the island's lifestyle and tax regime. Tune in to discover how to navigate the tax landscape and make the most of Cyprus’s favourable conditions.

This series of podcasts explores the beneficial tax regimes in Italy, Spain, Portugal, Malta, Cyprus, Switzerland, Singapore, Israel and Dubai in respect of where UK residents may wish to emigrate in light of the non-dom changes introduced by the Conservatives, and the likely tightening of these rules under the new Labour government. 

Speaker 1:

Hello and welcome to the IBSA series of podcasts on considering countries to where UK residents may wish to emigrate, in light of the non-dom changes proposed by the Conservatives and the likely implementation of these rules under the new Labour government, including bringing foreign trust assets within inheritance tax and increasing capital gains tax rates to income tax levels particularly aimed at fund managers. My name is Roy Saunders, founder and chairman of the IBSA, the International Business Structuring Association, a multidisciplinary global association of entrepreneurs and their professional advisors, dedicated to sharing their expertise with each other within a great networking platform. So our current series of 15-minute podcasts will review beneficial tax regimes in Italy, spain, portugal, malta, cyprus, switzerland, singapore, israel and Dubai. Today I am joined by Alexis Christodoulou, who's a South African lawyer practicing as an international tax lawyer with the leading in Cypriot law firm, elias Neoclius Co, based in Limassol.

Speaker 1:

Alexis Cyprus can, of course, join Malta, italy, spain and Portugal amongst some of the countries we are covering in our series of podcasts. Offering great food, wonderful weather and an excellent tax regime for incoming residents, and, having had an office in Cyprus for 15 or more years, I am well aware of the good food and everything else that goes along with Cyprus. But can we start by discussing the tax regime in Cyprus. What do people have to do to become tax residents, and so on.

Speaker 2:

Roy, firstly, thank you very much for having me today on this podcast. It's an absolute pleasure being here representing our law firm on this international level. We're all eagerly watching what's going on in the UK with the change in the political landscape and and what the tax effect will be in the future. To start off and answer some of your initial questions, I think let me give you a little brief background on the tax landscape in Cyprus and we take it from there. So to start off, I want to mention that Cyprus, in the last few years, has really established itself as an attractive jurisdiction for foreigners looking to relocate, either as employees, entrepreneurs or as private individuals for tax and wealth planning purposes.

Speaker 2:

The most important part of relocating to Cyprus is understanding how to obtain tax residency to Cyprus is understanding how to obtain tax residency.

Speaker 2:

Specifically, there are two ways to obtain tax residency and they are both based on physical presence on the island. We have firstly the 183-day rule, which is rather straightforward. You are classified as a Cyprus tax resident in the year of assessment if you spend over 183 days in the calendar year. The second test, which becomes a little bit more complicated, is the 60-day test. Test applies to individuals who, in the relevant tax year, do not reside in any other single state for a period exceeding 183 days in aggregates, who are not considered tax residents by any other states, who reside in Cyprus for at least 60 days and who have other defined Cyprus ties. To satisfy this condition, the individual must carry out any business in Cyprus and or be employed in Cyprus, and or hold an office such as director of a company tax resident in Cyprus at any time in the tax year, provided that such is not terminated during the tax year. Furthermore, the individual must maintain in the tax year a permanent residential property in Cyprus which is either owned or rented by him or her.

Speaker 1:

That's interesting because in places like Malta, for example, you're the only one that we've had so far where you refer to the other countries in which the person might be resident, and if they are resident in the other countries, then the 60-day rule doesn't apply. But if they're not resident in the other countries, then the 60-day rule applies, and that's. That's quite an unusual feature of a tax regime. I haven't seen that before.

Speaker 2:

Yeah.

Speaker 2:

So what's interestingly enough here is that, because this is quite linked to the UK this discussion, it's important for me to point out that our tax department has actually issued a circular when it comes to the 60 day rule and the individual is, at the same time, a tax resident of the UK.

Speaker 2:

Obviously, I'm a tax advisor in Cyprus and my knowledge of the UK is limited, but from what I know in the UK is that your tax year runs from April, whereas in Cyprus our tax year runs from the beginning of the year, 1st of January, up until the end of the year end of December. So there's this four month discrepancy difference between the two jurisdictions, four-month discrepancy difference between the two jurisdictions, and our tax authority has addressed this by issuing a circular that states that if the individual is considered a tax resident of the UK, when it comes to the 60-day test, the requirement of not being a tax resident in another state will not be infringed, meaning that an individual coming from the UK can still claim tax residency in Cyprus during the tax year if all the other conditions are met in terms of the 60-day tax.

Speaker 1:

Well, that is very relevant for 60-day term. Well, that is very relevant for these series of podcasts because we're talking about UK people coming over. Now, of course, as we know, and unfortunately, we're not part of the European Union. So how easy is it for Brits to come over to Cyprus and gain residency there?

Speaker 2:

Well, as this is a very important topic because tax residency is linked to a physical presence on the island, it's very important to understand how this is possible. So there are a few criteria. In Cyprus, One of the most, let's say, applicable ones when it comes to private wealth is residency by investment. So we have a very straightforward criteria which states that an individual who purchases a brand new residential property from a separate development company which is worth at least 300,000 euros plus VAT and might I add that there is incentive for a reduced VAT of 5% from 19% on the purchase price Applicants must then prove a secure annual income of 50,000 euros deriving from abroad, and the said annual income increases accordingly if the applicant intends to add their spouse or children to the application. So it's pretty straightforward. If someone is looking to move to Cyprus, establish a residence, they can purchase a new residence for €300,000 plus the VAT. They will automatically obtain the fast-track permanent residency.

Speaker 1:

So I know from experience that 300,000 euros doesn't go so far nowadays. It used to go a long way in Cyprus, but prices have increased quite a lot since then. But tell me, if one is able to get to residency it sounds like it's quite easy for Brits to do that. What's the tax consequences of that? Are they exempt for the foreign income which a lot of countries are doing, like for example, malta has a non-dom regime. What's the situation in Cyprus so?

Speaker 2:

OK, the general concept in Cyprus is that when you become a tax resident in Cyprus, you are taxed on your worldwide income. Okay, next point, that you brought up non-domicile residents. In Cyprus, we have a concept known as the non-domicile regime. Certain individuals can qualify for this regime provided that they are not tax residents in Cyprus for at least 17 out of the 20 tax years immediately prior to the tax year of assessment. If you're a non-domicile tax resident in Cyprus, you have certain advantages over domiciled individuals when it comes to taxation. These incentives include being exempt from special defence contribution in Cyprus. Exempt from special defence contribution in Cyprus. Special defence contribution is a tax that is payable on dividends and interest, amongst a few others, but the ones which are relevant for now, I think for private wealth individuals, is the exemption from interest and dividends. Interest and dividends are exempt from income tax in Cyprus and there's only special defence contribution charged on such incomes from Cyprus or any passive interest earned will be exempt from tax in Cyprus effectively because of your exemption to special defence tax.

Speaker 1:

And for capital gains tax purposes. I think you don't have a capital gains tax in Cyprus, do you for individuals?

Speaker 2:

Again a very, very good point. So capital gains tax is generally not charged in Cyprus, with one certain exemption. That only exemption applies to the disposal of immovable property in Cyprus. So as a general concept, the sale of shares, or let me say, there's a term called we use securities. The law, the income tax law, uses the word securities and under securities we have a description of shares and and all sorts of other concepts which are exempt from from tax. So the only type of cgt that's available in cyprus is is a sale of immovable property in cyprus.

Speaker 1:

Okay. Now I mean that's really interesting because, for example, in Italy there's an anti-abuse rules to stop people going into Italy and getting a capital gain tax-free for the first five years of residency. But if you don't have a capital gains tax anyway in Cyprus, that's perfect, and for non-DOM individuals it's coming over to Cyprus. Is there a limit for how long they can claim non-dom status, like in the UK? There was 17 out of 20 years, 15 out of 20 years. Then what's it in Cyprus? Is there a limit or is this forever?

Speaker 2:

Yeah, yes, so Cyprus, similar concept to what you've described. You're a non-domicile for 17 years, so you would qualify for 17 years as a non-domicile and enjoy the benefits of that.

Speaker 1:

OK, and as far as inheritance tax is concerned, do you have an inheritance tax in Cyprus? How does that apply to non-residents?

Speaker 2:

Yes, inheritance tax in Cyprus. How does that apply to non-residents? Yes, again, very good point and something that is widely considered when people are relocating to Cyprus. We have no inheritance tax in Cyprus.

Speaker 1:

Okay, well, that's really interesting. So there are a lot of benefits that I can see there. You know there's a huge shift in the tax arrangements in the UK because of the problems with the National Health Service and defence spending and all the other things, and taxation has tended to rise over the years quite significantly. Do you see any changes that might be brought about either by the Cypriot government itself or perhaps by pressure from the EU to change the rules in Cyprus in any way?

Speaker 2:

Well, cyprus generally and very importantly, adheres to all international tax principles and is a member of the OECD. I do not foresee any significant changes in incentives that apply in Cyprus. All that I foresee is measured steps to align the legal framework with the evolving needs of modern businesses, so that we can attract foreign investment and development and offer a range of incentives and opportunities to investors, employers and employees looking to establish themselves in the country's dynamic setting. Stakeholders across sectors have really done their best to integrate all these aspects into one system. I just want to give you a quick example before you bite it. That would be the establishment of a special unit that has been established in October 2021 for the business facilitation unit. This has been a very good example and a very positive step by the government in attracting high skilled individuals to Cyprus by large-scale and also early startup businesses to Cyprus. What this business facilitation unit does is that it fast-tracks granting permits to non-EU and third-country nationals to Cyprus for them and their family members, therefore making it easier for attracting such workforce.

Speaker 1:

Okay, and talking about workforce, I believe that employees who come over to Cyprus can get some tax benefits as well. They obviously are going to be subject to Cypriot tax on their earnings, but is there a reduction in the tax rate that is applicable or an exemption? Tell me.

Speaker 2:

Yeah, again, something also very relevant at the moment and in practice, we see a lot of queries on this because it blends so well with the non-domicile regime where you're exempt from dividends and interest the non-domicile regime where you're exempt from dividends and interest. So, when it comes to employment income, we offer, as of 1st of January 2022, a 50% exemption on remuneration when it comes to employment income in Cyprus for individuals who are not resident in Cyprus for a period of at least 15 consecutive years immediately prior to commencement of their employment in Cyprus. The only condition here, over and above this, is that the remuneration should exceed €55,000 per income. I mean blending this with the non-domicile regime. It really works well. When it comes to tax planning and tax considerations on an international level, OK, well, thank you very much.

Speaker 1:

I mean that's really a 15 minute summary. That's really interesting, really exciting. I think a lot of people will be very interested in Cyprus as a place to go to if the need arises. I hope that the Labour government is going to be very business friendly and also entrepreneurial friendly as well, so that they don't drive out the people that can create the growth in the UK in years to come. But should they do so, then Cyprus is obviously one of the attractive tax regimes that I've been covering in this series. So I mean, thank you very much, alex. It was really interesting, very comprehensive. Thanks for joining me today and thank you everybody for listening. Thank, you.

Speaker 2:

Thank you very much, roy, and good day to all the listeners out there and looking forward to having a future discussion.