Tax Incentives
Work under an EU regime with low tax exposure.
In its aim to attract new investments from overseas and provide the incentives for individuals to relocate here; Cyprus has enacted new regulations in 2015 that provide tax reliefs from personal taxes, dividend, interest, and rental income in Cyprus.
In addition special tax provisions were applied to new or converted capital inserted to Cyprus companies.
Please see below what incentives are provided to individuals for relocating to Cyprus and also the tax deduction for corporations on capital injections.
1. Non-Domicile status
Non-Dom person is someone who lives in Cyprus, but he is not legally domiciled in.
According to the law, every person has at any given time either:
the domicile received by him/her at birth (‘domicile of origin’), or
the domicile (not being the same as the domicile of origin) acquired or retained by him/her by his/her own act (‘domicile of choice’).
Under (i) above, the domicile of origin of a legitimate child is that of the father’s, or in the case of an illegitimate child, that of the mother’s. Under (ii) above, a person may acquire a domicile of choice by establishing his/her home at any place in Cyprus with the intention of permanent or indefinite residence. The domicile of origin prevails and is retained until a domicile of choice is in fact acquired. Once a domicile of choice has been acquired, it will be retained until it is abandoned, in which case either a new domicile of choice will be acquired, or the domicile of origin is resumed.
In 2015 Cyprus has introduced tax laws that provide exemptions from taxation of certain personal income of non-domiciled individuals.
These tax laws apply to Non – domiciled Tax residents of Cyprus for income arising only from rents (3% out of 75% of their income), interest (30%) and dividends (17%).
The mentioned tax exemption provides that any person who chooses Cyprus as a country of residence and has Cyprus Tax Identification Number is exempted from withholding tax on income arising from investment capital. The exemption is valid for income derived from Cyprus or abroad.
This exemption is valid for individuals that in the last 17 out of 20 years were not permanent Cyprus tax residents and now choose to be Cyprus tax residents. Individuals according to the relevant legislation will be entitled to the above deduction for 17 years after the date on which they have chosen Cyprus as their home country and tax residence.
2. 50% Deduction On Income Tax
50% tax deduction is provided on remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment and with annual income of over €55.000 – from 2022 onwards. The exception is provided for 17 years from the year of employment.
Example Table: Annual Income Of €100.000
The below Table 1 demonstrates the tax that would be applied on income of €100.000 without any deduction. Table 2 demonstrates the same amount with the deduction applied.
Table 1
| Salaried Tax Scale | Tax Rate | Tax Scale on €100.000 excluding deduction |
|---|---|---|
| € | % | € |
| Up to 19.500 | Zero | Zero |
| From 19.501- 28.000 | 20 | 1.700 |
| From 28.001 – 36.300 | 25 | 2.075 |
| From 36.301 – 60.000 | 30 | 7.110 |
| From 60.001 – 100.000 | 35 | 14.000 |
| Total | 24.885 |
Table 2
| Salaried Tax Scale | Tax Rate | Tax rate on €100.000 with 50% deduction |
|---|---|---|
| € | % | € |
| Up to 19.500 | Zero | Zero |
| From 19.501 – 28.000 | 20 | 1.700 |
| From 28.001 – 36.300 | 25 | 2.075 |
| From 36.301 – 50.000 | 30 | 4.110 |
| Total | 7.885 |
To conclude, the person with income of €100.000 would be taxed with €7.885 or 7,88%.
The advisory team of KTC is always available and ready to assist you on any procedure and preparation of the yearly tax return.
3. 20% Tax Deduction
20% tax deduction or €8.550 whichever is the lowest, is provided on remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment. The exemption is available for a period of 5 years for employments commencing during or after 2012 and it applies from the tax year following the year of commencement of the employment, with the last eligible tax year being 2030.
This exemption may not be claimed in addition to the immediately above mentioned 50% exemption for employment income.
4. Notional Interest Deduction
In order to attract more direct investments and injection of new capital into existing Cyprus companies; Cyprus has provided for a Notional Interest Tax Deduction on any new capital injected in Cyprus companies after the 1st of January 2015.
Equity introduced to a company as from 1 January 2015 (new equity) in the form of paid-up share capital or share premium is eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as an interest rate on the new equity and cannot exceed 80% of the taxable profit derived from assets, financed by new equity. The relevant interest rate is the yield on 10-year government bonds (as at December 31 of the prior tax year) of the country where the funds are employed in the business of the company plus a 3% premium (subject to a minimum amount which is the yield on the 10 year Cyprus government bond as at the same date plus a 3% premium).
The amount of notional interest cannot exceed the 80% of the tax income of the company, as this will be identified according to law, before the interest deduction. If Notional Interest is below the 80% of the taxed income, then the whole amount of the interest is deducted.
The tax deduction is applied to Tax Resident companies, as well as to non-Tax Residents owning a permanent office in the republic of Cyprus.
5. Other Advantages
In addition to the very low Corporate tax rate Cyprus has much more to offer. A state member of the European Union, Cyprus provides the opportunity to companies and investors to operate under a secure legal framework and environment, protecting businesses and at the same time promoting their growth.
- Corporate tax rate 12.5%
- EU State Member
- IP Box Regime
- Tonnage Tax System
- Notional Interest Deduction
- Tax‐exempt dividend income (subject to non‐stringent conditions)
- No withholding taxes on payments of dividends, interest and royalties irrespective of recipient
- No taxation on profits from the sale of securities (no minimum holding period, percentage etc.
- No taxation on profits of foreign permanent establishments
- No taxation on the liquidation of a Cypriot company
- Wide tax treaty network
- Unilateral tax credit relief irrespective of the existence of a tax treaty
- No substance, debt‐equity and thin capitalization rules
- Full adoption of the EC Directives and many more
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