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    1. The Secret Private Client Tax Adviser: Cyprus debriefing

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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.

      TN

      [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?

      Secret Adviser

      [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.

      TN

      [frustratingly shakes pen]: Could you clarify the day counting rules?

      Secret Adviser:

      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.

      TN:

      And what about the 60-day rule I’ve heard of?

      Secret Adviser:

      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.]

      Cleaner:

      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.]

      Secret Adviser

      [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.

      TN:

      Tell me more about non-doms and how they’re taxed? It’s quite an attraction for wealthy individuals isn’t it?

      Secret Adviser:

      [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.

      TN:

      That sounds pretty attractive, Secret Adviser.

      How does Cyprus tax its residents?

      Secret Adviser:

      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.

      TN:

      Let’s talk about individual income and other specific taxes.

      Secret Adviser:

      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.

      TN:

      What about real property?

      Secret Adviser:

      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.

      TN:

      And for non-cash assets brought into Cyprus?

      Secret Adviser:

      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.

      TN:

      What other taxes should individuals be aware of?

      Secret Adviser:

      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.

      TN:

      Could you touch on the taxation of trusts, charities, and any anti-avoidance provisions?

      Secret Adviser:

      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.

      TN

      [nods, satisfied]: This has been incredibly insightful. Navigating Cyprus’s tax landscape seems complex but quite structured.

      Secret Adviser:

      [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…

      Final thoughts

      If you have any queries about private client taxation in Cyprus, or tax matters in Cyprus more generally, then please get in touch.

    2. Cyprus Transfer Pricing update

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      Introduction

      On 30 June 2022, the Cyprus Parliament approved amendments to the Cyprus Income Tax Law and new Regulations to introduce Transfer Pricing (“TP”) documentation compliance obligations (Master File, Cyprus Local File, Summary Information Table).

      The documentation requirements apply to Cypriot tax resident persons and Permanent Establishments (PE’s) of non-tax resident entities that engage in transactions with related parties. The aim of the new law and regulations is to ensure compliance of covered entities with the arm’s length principle.

      In addition, the law has been amended to update the definition of related parties by introducing a minimum 25% relationship threshold relevant for companies.

      The law amendments and Regulations are effective from the tax year 2022 onwards.

      Overview

      The new transfer pricing law and regulations cover all types of transactions between related parties in excess of €750.000 per category of transaction.

      Different types of transactions include sale/purchase of goods, provision/receipt of services, financing transactions, receipt/payment of IP licences/royalties, others.

      A relevant notification has been issued by the Cyprus Tax Department (“CTD”) providing (amongst others) the required detailed contents of the Master File and Cyprus Local File.

      The Summary Information Table (SIT) must be prepared by all taxpayers that engage in Controlled Transactions on an annual basis, disclosing details regarding such transactions. There is no threshold for the SIT, and this must be submitted electronically together with the Income Tax return for the relevant tax year.

      Exemptions

      The following exemptions shall apply:

      • Master File: It applies only to Cyprus tax resident entities that are ultimate or surrogate parent entities of multinational group which has consolidated revenues above €750M (with CbCR obligations). All other persons are exempt from this obligation.
      • Local File: Exception is granted if the volume of controlled transactions does not exceed €750,000 per category of transactions.

      Quality Review

      A person who holds a Practicing Certificate from the Institute of Certified Public Accountants of Cyprus (ICPAC) or another approved by the Council of Ministers body of certified auditors

      in Cyprus is expected to perform a Quality Review of the Cyprus Local File.

      Deadline

      The TP Documentation File must be prepared on an annual basis, by the deadline of filing the Income Tax Return for the relevant tax year.

      Penalties

      In case of late submission or non-submission of files, the law and regulations prescribe the following penalties:

      Non-submission of Table of Summarized Information within deadline€ 500
      Late filing of the Local &/or Master File: 
         – within the 61st and 90th day from request€ 5,000
         – within the 91st and 120th day from request€ 10,000
         – after the 121st day from request or non-filing€ 20,000

      If you have any queries about this Cyprus Transfer Pricing update, or Cyprus tax matters generally, then please do not hesitate to get in touch.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

    3. Loans made by a Cyprus Company to a non-Cyprus Tax resident individual shareholders

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      Introduction

      As from 1 January 2012, according to the provisions of article 5 (2) of the Income Tax Law 118 (I) / 2002, whenever a company grants a loan or any other monetary facility including cash withdrawal (other than balances derived from trade transactions) to natural persons, being its directors or shareholders or their spouses or their relatives up to second degree, then that person is deemed to have a monthly benefit equal to nine percent (9%) per annum on the balance of the loan or of any other monthly cash benefit at the end of each month (including cash withdrawals during the month).

      Monthly benefit

      The tax on the monthly benefit is calculated based on the applicable income tax rates and is due in accordance with the Pay-As-You-Earn ‘PAYE’ regulations. This means that the benefit is included in the taxable income of that person in Cyprus.

      It is noted that calculation of the benefit does not take into consideration the number of days spent in the Republic by the individual throughout the year (circular 14, dated 14 November 2017), as was the case up to the end of 2017. 

      Reporting

      Considering the above, the individual will have an obligation to register with the Income Tax authorities in Cyprus and submit an annual tax declaration provided that the annual amount of the deemed benefit, including any income from other sources, exceeds the tax-free amount of €19.500. If his total income is less than €19.500 then the Company has no obligation to withhold any tax.

      We note that in case the company charges interest to the individual’s debit balance, then that amount of interest reduces the value of the deemed benefit.

      Examples

      Example A – A Company’s shareholder is receiving an interest-free loan amounting to 1m:

      • Estimated deemed benefit will be 90K (1m @ 9%)
      • Amount of the benefit is more than the tax-free threshold of €19.500

      Result: An obligation arises for the Company to withhold tax on behalf of the shareholder according to the applicable rates and pay the tax under the PAYE system.

      Example B – A Company’s shareholder is receiving an interest-free loan amounting to 100K:

      • Estimated deemed benefit will be 9K (100K @ 9%)
      • Amount of the benefit is less than the tax-free threshold of €19.500

      Result: No obligation arises for the Company to withhold tax on behalf of the shareholder.

      Example C – A Company’s shareholder is receiving a loan amounting to 500K, with an interest of 6%:

      • Estimated deemed benefit will be 45K (500K @ 9%)
      • Interest charged is 30K (500K @ 6%)
      • Amount of the benefit is 15K (45K – 30K)
      • Amount of the benefit is less than the tax-free threshold of €19.500

      Result: No obligation arises for the Company to withhold tax on behalf of the shareholder.

      If you have any queries about this article, Cyprus tax , or the matters discussed more generally, then please do not hesitate to get in touch.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article

    4. Cyprus Tax residency for individuals – an overview

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      Introduction

      This article provides a brief overview of Cyprus tax residency in relation to individuals, the implications of such a status and some of the practical considerations.

      Cyprus tax residence – the general rule

      Firstly, an individual who is present in Cyprus for 183 days will be resident for tax purposes in Cyprus.

      Cyprus tax residence – ‘the 60-day rule’

      In addition, one will also be resident for tax purposes in Cyprus under the so-called 60 day rules where each of the following is satisfied:

      • You remain in Cyprus for one or more periods totalling a minimum of 60 days;
      • You are not present in any other state for a total of over 183 days;
      • You are not resident for tax purpose in any other state for the same tax year;
      • You have some relevant activity in Cyprus, specifically that:
        • You operate a business in Cyprus;
        • are employed in Cyprus; or
        • hold a position in a company that is tax resident in Cyprus; and
      • You maintain a permanent residence in Cyprus (either owned or rented).

      Tax residency and Cyprus personal taxes

      Cyprus personal income tax is imposed on the worldwide income of individuals that are  resident for tax purposes in Cyprus.

      However, income from dividends and (most types of) interest income that is received by individuals are exempt from personal income tax

      From 16 July 2015, individuals are subject to Special Defence Contribution on dividends and interest income where the person is both both Cyprus tax resident and Cyprus domiciled.

      Capital gains are also not usually taxable in Cyprus unless they have arisen in respect of Cyprus situs immovable property

      Individuals who are not tax residents of Cyprus are taxed only on certain types of income accrued or derived from sources in Cyprus.

      Cyprus tax residency – practical considerations

      In order to obtain a certificate of tax residence, all supporting documents must be submitted to the Tax Department of Cyprus. These docs must be stamped.

      If the documents are in any other language than English or Greek then they must be translated.

      If an individual is considering relocating to Cyprus, expert advice should be taken with respect to Cypriot as well as cross-border tax implications arising from the relocation.

      If you have any queries about this article, tax residency in Cyprus, or tax matters more generally, then please do not hesitate to get in touch.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article