New residents in Cyprus can benefit from a range of attractive tax incentives designed to encourage foreign individuals to move to and invest in the country. Here are the key tax benefits:
Non-Domicile (Non-Dom) Tax Status
One of the most attractive incentives for new residents is the non-domicile (non-dom) tax status. Individuals who qualify as non-doms enjoy the following benefits:
- No Tax on Worldwide Dividends and Interest: Non-domiciled residents are exempt from the Special Defence Contribution (SDC) tax on dividends, interest, and rental income from both local and foreign sources for a period of 17 years.
- No Wealth or Inheritance Tax: There are no wealth or inheritance taxes in Cyprus, making it an attractive location for preserving wealth.
Personal Income Tax Benefits
Cyprus offers several personal income tax incentives for new residents:
- 50% Tax Exemption: Individuals who take up employment in Cyprus and earn an annual income exceeding €100,000 are entitled to a 50% tax exemption for a period of 10 years, provided they were not tax residents of Cyprus before the commencement of their employment.
- 20% Tax Exemption: For employees earning less than €100,000 per year, there is a 20% exemption on their income, up to a maximum of €8,550 annually, for the first five years of employment in Cyprus. This incentive is set to increase to a maximum of €20,000 or 50% of income, whichever is lower, and is extended for a period of 17 years .
- Personal Income Tax: The first €19 500 of all sources of income including rentals is tax free. This applies to each taxpayer. For married couples, €39 000 pa of income is tax free. Tax is payable on progressive bands and over €60 001pa the marginal rate is 35%. Tax effective indeed!
Capital Gains Tax Exemption
- Exemption on Worldwide Assets: Capital gains tax is only applicable to gains from the disposal of immovable property located in Cyprus or shares in companies holding such property. This means that gains from the sale of worldwide assets are not subject to capital gains tax in Cyprus.
No Inheritance or Wealth Tax
- Inheritance and Wealth Tax: Cyprus does not impose any inheritance or wealth taxes, allowing residents to pass on their wealth to heirs without additional tax burdens. Great for generational wealth and estate planning.
- Ring Fencing: For those concerned with ring fencing international wealth from political and economic uncertainty, Cyprus is the answer.
Favourable Corporate Tax Rates
- Corporate Tax Rate: Cyprus has a low corporate tax rate of 12.5%, one of the lowest in the European Union.
- Intellectual Property (IP) Box Regime: The IP Box regime in Cyprus provides significant tax benefits for income derived from intellectual property, including a potential effective tax rate of 2.5%.
Double Tax Treaties
- Extensive Network: Cyprus has over 60 double tax treaties in place with various countries, reducing the risk of double taxation on income earned in multiple jurisdictions.
VAT Incentives
- Reduced VAT Rates: Various goods and services are subject to reduced VAT rates, including 5% on the purchase or construction of a new house for use personal use.
Conclusion
Cyprus offers a highly attractive tax regime for new residents, with significant benefits that include exemptions from various taxes, favourable personal and corporate tax rates, and an extensive network of double tax treaties. These incentives make Cyprus an appealing destination for individuals looking to optimize their tax situation while enjoying a high quality of life in a beautiful Mediterranean setting.
References
PwC Cyprus – Tax Facts & Figures 2023, KPMG Cyprus – Personal Taxation, Deloitte Cyprus – Taxation and Investment in Cyprus 2023, Grant Thornton Cyprus – Tax Guide, Invest Cyprus – Personal Tax Incentives