How do I become a Cyprus tax resident?

The decision to relocate to another country is a major life decision and needs to be carefully considered. A number of factors need to be assessed, such as employment opportunities, language barriers, political and economic climate and culture shock. However, for those who are willing to take the plunge, the rewards can be great, particularly when you pick a country with ample opportunities for business development and structuring your wealth.

There are many reasons why someone might want to relocate to Cyprus. The island has a lot to offer, including beautiful weather, stunning beaches, friendly locals, and a great quality of life. But Cyprus is not just a marvelous tourist destination and a great place to live, it also offers many tax advantages and possibilities to apply for permanent residency via investment.

If you are a non-resident and you earn income from Cypriot sources, you will only be taxed on income that it is generated in Cyprus. However, becoming a Cyprus tax resident can be advantageous, when searching to relocate your personal tax residency to a country in the EU.

Let’s begin with the well-defined rules under when a person will be considered a Cyprus tax resident:

1. The 183 days rule: When you stay in Cyprus for one or more periods exceeding a total of 183 days in the tax year.
2. Under the 60 days rule: When you stay in Cyprus for at least sixty (60) days in the tax year ( provided you are not tax resident in another country) and a) carry on business in Cyprus and/or b) are employed in Cyprus and / or c) hold a position with a Cyprus tax resident Company at any time during the tax year and d) maintain a permanent residence in Cyprus (owned or rented).

Expecting income from passive sources? Apply for the Non-dom status!

The so called ‘non-domicile status’ allows Cyprus tax resident individuals, not born in Cyprus and having not lived in Cyprus for at least 17 consecutive years to benefit from a complete 17-year exemption from taxes levied on interest and dividend income. A zero-tax rate on passive income is surely a preferred bonus over standard 17% rate on dividends and 30% rate on interest income for Cyprus domiciled individuals.

Of course, there are other advantages to becoming a Cyprus tax resident:

• Access to the country’s excellent healthcare system
• Use of many double taxation agreements between Cyprus and other countries
• Right to live and work anywhere in EU, if you are an EU citizen
• Tax reduction on income and remuneration received from employment in Cyprus  for new residents in Cyprus:
• Low Tax Rate in respect of Foreign Pensions, taxed in Cyprus at the flat rate of 5% for amounts in excess of €3,420.
• No inheritance tax, no wealth tax, no gift taxation, no immovable property taxes.
• No capital gains tax on profit from sale of securities
• No capital gains tax on profit from the sale of  property or sale of shares situated outside Cyprus

Want to make an investment and become a permanent resident?

With recent amendments to Regulation 6.2, third-country nationals (non-EU citizens) can apply for a permanent immigration permit through an expanded scope of investment options , provided that certain investment and quality criteria are met.  Permanent residence is attractive because as the name suggests, this permit once granted, is permanent and does not have to be renewed, unless cancelled. The fast-track process means submitted and complete applications are reviewed within a period of only 2 months.

Regulation 6.2 provides great choice and flexibility to foreign investors, seeking permanent residency in the  EU on the sunny island of Cyprus, absolving them of any compliance with entry visa requirements and extending residency cover to other family members.

Investment Criteria

In a nutshell, to qualify for permanent residency in Cyprus, you must invest at least  €300,000 in one of the four different categories:

1. You can buy a house or apartment (this must be a first sale directly from property developers).
2. You can invest in commercial property, whether it is a shop, an office or a hotel (this can be a first sale or a re-sale)
3. You can invest in the share capital of a Cyprus company with business activities and at least 5 employed staff located in Cyprus. 
4. You can invest in units of a Cyprus Collective Investment Organization (type AIF, AIFLNP, RAIF)

Minimum Annual Disposable Income

Applicants must demonstrate a minimum disposable annual Income of €30.000, which increases by €5,000 for each dependent family member and €8,000 for each dependent parent (of the applicant and/or his spouse). This annual income may derive from a number of sources including salary, dividends from shares, fixed deposits, rents, etc.

In the case of investment under category 1 – income must strictly originate from overseas, whereas under categories, 2, 3, and 4 – income or part of it may originate from related activities in Cyprus.

Accommodating Documents Last but not least, the application must be accompanied by certain personal documentation regarding the applicant and his family including, inter alia, the provision of a clean criminal record from their country of residence. Depending on the type of investment, documents such as company certificates, sale- purchase agreements, investment and business plans will too need to accompany the application.

If you are thinking of relocating to an EU country or buying a holiday home, consider Cyprus. With its attractive tax regime, great quality of life, stable political climate and favourable location, Cyprus is an ideal place to call ‘home’. The various tax exemptions such as the exemption from taxes on both dividend and interest income, capital gains tax exemptions on income from sale of securities and immovable property and tax reductions on employment remuneration can certainly be utilized to effectively structure your tax liability. For relocation purposes, especially if you are a  high net-worth individual or  engaged in business activities generating mostly passive income, the island has a lot to offer for a comfortable life under the sun.

If you would like to find out more about becoming a Cyprus tax resident or apply for permanent residency, please contact us today. We would be happy to answer any of your questions and help you get started on the process!

The information provided above by C. Pilyugin & Co LLC is intended for general information purposes only and should not be construed as professional or legal advice in any sense. It is advised that readers should refrain from acting only on the basis of the above information without first obtaining legal or professional advice on the subject.

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