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[Scene: A bustling hotel lobby in Limassol. Soft jazz music plays in the background. Tax Native (“TN”), holding a notepad and pen, sits across from our Secret Private Client Adviser in Cyprus (“Secret Adviser”) at a small round table.
Head Tax Native (“TN”):
[Adjusts glasses, voice hushed] Secret Private Client Adviser in Cyprus, your mission, should you choose to accept it, is to educate us on the detailed tax issues in Cyprus.
This task requires in-depth knowledge and utmost discretion.
Should your identity be compromised, you will be disavowed.
Are you ready to embark on this mission?
Secret Private Client Adviser in Cyprus (“Secret Adviser”):
[Nods firmly] I accept. Let’s get stuck in.
[leans forward, intrigued]: I’m eager to understand the tax framework for private clients in Cyprus. Specifically, how does an individual become taxable in your jurisdiction?
[sips coffee]: Well, it boils down to the numerical day test. A person residing in Cyprus for more than 183 days in the year of assessment is considered a tax resident. It’s worth noting that these days don’t need to be consecutive, and the year of assessment aligns with the calendar year.
[frustratingly shakes pen]: Could you clarify the day counting rules?
Of course. The day of departure is not counted as a day in Cyprus, while the day of arrival is. If you both arrive and depart on the same day, it’s counted as a day in Cyprus. Conversely, if you depart and return on the same day, it’s considered a day spent outside Cyprus.
And what about the 60-day rule I’ve heard of?
That’s an additional test introduced in 2017.
An individual can be considered a Cyprus tax resident if they reside here for at least 60 days within the same tax year, are not tax residents in any other country, are employed or run a business in Cyprus, and maintain a permanent residence here.
[Suddenly, a cleaner approaches the table.]
Excuse me, could you lift your feet? I need to vacuum under your table.
[They comply, a bit startled, as the cleaner briskly vacuums around their feet and moves on.]
[continuing]: Moreover, the tax legislation post-15 July 2015 distinguishes between domiciled and non-domiciled tax residents.
Non-domiciled individuals are exempt from Special Defence Contribution, which typically applies to passive income like rents, dividends, and interest.
Tell me more about non-doms and how they’re taxed? It’s quite an attraction for wealthy individuals isn’t it?
[Laughs] Well, that’s kinda the idea!
It’s not quite the same as the UK non-dom framework or Ireland.
Broadly speaking, if you are non-dom, then there is no income tax on dividend and interest income generated overseas.
In addition, there is no tax on gains arising on the disposal of investments held overseas.
Unlike the Uk or Ireland… It doesn’t matter what is done with the funds. So no pesky remittances.
That sounds pretty attractive, Secret Adviser.
How does Cyprus tax its residents?
Cyprus tax residents face taxation on their worldwide income.
However, Cyprus is fairly generous with granting credit for foreign tax paid. A comparison is made between the Cypriot tax and the foreign tax suffered, and the lower of the two is credited.
Let’s talk about individual income and other specific taxes.
Sure. Income tax is progressive. The initial €19,500 is exempt, followed by incremental rates up to 35% for amounts above €60,000.
Capital gains tax is specific to the disposal of immovable property situated in Cyprus.
And interestingly, there are no taxes on lifetime gifts or inheritance.
What about real property?
Capital gains tax applies only to disposals involving immovable property in Cyprus.
While Immovable Property Tax was abolished from 1 January 2017, local taxes on real estate are minimal.
And for non-cash assets brought into Cyprus?
Since joining the EU in 2004, Cyprus follows EU customs.
No duties on goods from EU countries. Non-EU goods are subject to duties, and VAT applies to all imported goods.
What other taxes should individuals be aware of?
VAT rates vary, and Special Defence Contribution applies to passive income for those who are both tax residents and domiciled in Cyprus.
Stamp duty is also applicable on certain documents related to property or affairs in Cyprus.
Could you touch on the taxation of trusts, charities, and any anti-avoidance provisions?
Certainly. Trusts are not taxable entities, but trustees must adhere to tax liabilities for beneficiaries. Charities enjoy tax exemptions, especially on income and disposals.
As for anti-avoidance, Cyprus implements the EU Anti-Tax Avoidance Directive, including rules like the Interest Limitation Rule and Controlled Foreign Company rule, ensuring transactions are genuine and not solely for obtaining tax advantages.
[nods, satisfied]: This has been incredibly insightful. Navigating Cyprus’s tax landscape seems complex but quite structured.
[Standing up, and shaking hands] Pleased to be of assistance.
[The Adviser blends into the bustling hotel lobby.]
The world of private client tax is safe for another day…
If you have any queries about private client taxation in Cyprus, or tax matters in Cyprus more generally, then please get in touch.