Cyprus Tax Residency Rules
Understanding Cyprus Tax Residency
Tax residency status is a crucial factor that determines how individuals and companies are taxed in Cyprus. Being a tax resident of Cyprus offers several advantages due to the country's favorable tax regime, extensive network of double tax treaties, and various tax exemptions.
Cyprus has clear criteria for determining tax residency status for both individuals and companies. Understanding these rules is essential for proper tax planning and compliance with Cyprus tax laws.
Tax Residency for Individuals
An individual can become a tax resident of Cyprus through either the 183-day rule or the 60-day rule:
183-Day Rule
Individuals who spend more than 183 days in Cyprus during a calendar year are considered tax residents.
60-Day Rule
Individuals who meet all of the following conditions: (1) stay in Cyprus for at least 60 days, (2) don't reside in any other country for more than 183 days, (3) aren't tax residents elsewhere, and (4) have other defined ties with Cyprus.
Domicile Status
Non-domiciled tax residents enjoy exemptions from Special Defence Contribution tax on dividends, interest, and rental income for a period of 17 years.
60-Day Rule: Additional Requirements
To qualify under the 60-day rule, individuals must also:
- Business Activities
Carry out business activities in Cyprus, be employed in Cyprus, or hold a position in a Cyprus tax resident company.
- Permanent Residence
Maintain a permanent residence in Cyprus that is either owned or rented.
Tax Residency for Companies
A company is considered a tax resident of Cyprus if its management and control are exercised in Cyprus. The following factors are used to determine whether a company's management and control are in Cyprus:
Management and Control
A company is considered a tax resident of Cyprus if its management and control are exercised in Cyprus.
Board Meetings
Board meetings should be held in Cyprus, with strategic decisions made during these meetings.
Directors' Residence
The majority of directors should be residents of Cyprus.
Substance Requirements
The company should have real economic substance in Cyprus, including office space, employees, and local operations.
Substance Requirements for Companies
With increasing focus on substance requirements globally, a Cyprus tax resident company should maintain:
- Physical Presence
A physical office space in Cyprus with appropriate equipment and facilities.
- Qualified Personnel
Adequate number of qualified employees based in Cyprus.
- Local Decision Making
Strategic decisions should be made in Cyprus, with board meetings held in Cyprus.
- Bank Accounts
Maintain bank accounts in Cyprus and handle financial operations through these accounts.
Benefits of Cyprus Tax Residency
| Benefit | Individuals | Companies |
|---|---|---|
| Low Income Tax Rates | Progressive rates from 0% to 35% | Flat 12.5% corporate tax rate |
| Dividend Income | Exempt for non-domiciled residents | Generally exempt |
| Interest Income | Exempt for non-domiciled residents | Generally taxable |
| Capital Gains | Exempt except for Cyprus real estate | Exempt on securities |
| Inheritance Tax | No inheritance tax | Not applicable |
| Double Tax Treaties | Access to over 60 treaties | Access to over 60 treaties |
Tax Residency Advisory Services
Our team of tax experts can provide comprehensive advice on Cyprus tax residency matters for both individuals and companies, ensuring optimal tax planning and compliance.
Individual Tax Residency FAQs
- How is the 183-day period calculated?
The days are calculated based on physical presence, including the day of arrival, day of departure, and all other days spent in Cyprus.
- Can I be a tax resident in multiple countries?
Yes, it's possible to be a tax resident in multiple countries. Double tax treaties help determine which country has primary taxing rights.
- What is the tax year in Cyprus?
The tax year in Cyprus is the same as the calendar year (January 1 to December 31).
- How do I prove my tax residency status?
The Cyprus Tax Department can issue a Tax Residency Certificate upon application, which serves as official proof of your tax status.
Company Tax Residency FAQs
- How many board meetings should be held in Cyprus?
While there's no specific number required by law, it's advisable to hold at least 4 board meetings per year in Cyprus, with detailed minutes kept.
- Do all directors need to be in Cyprus?
Not all directors need to be in Cyprus, but it's recommended that the majority of directors are Cyprus tax residents and that key decisions are made in Cyprus.
- What is meant by 'effective management'?
Effective management refers to where the highest level of decision-making occurs. This includes strategic decisions, board meetings, and senior management activities.
- What documentation should be maintained?
Companies should maintain board meeting minutes, corporate documents, employment contracts, office lease agreements, and evidence of business activities in Cyprus.