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Cyprus introduces 60 day tax residency test

The Cyprus Income Tax Law has recently been amended to provide an incentive for individuals who wish to become tax resident in Cyprus by introducing a second “60 day” residency test to the “183 day” test already in place.

According to the “183 day” residency test, which remains in place, an individual is considered Cyprus tax resident if he/she resides in Cyprus for a total of 183 days in a tax year.

Following the introduction of the “60 day” test, which is effective as of 1st January 2017, an individual may alternatively be considered as a Cyprus tax resident if in the relevant tax year he/she:

a. Does not reside in any other single state for a total period of 183 days, and

b. Is not a tax resident in any other state, and

c. Resides in Cyprus for at least 60 days in the relevant tax year, and

d. Carries out any business in Cyprus and/or is employed in Cyprus and/or holds an office/position in a Cyprus tax resident company at any time in the tax year, and

e. Maintains a permanent residential property in Cyprus, which is either owned or rented.

The above criteria are cumulative and in order for the individual to obtain the Cyprus tax residency under the “60 day” rule, he/she must not cease to carry out a business or being employed or hold any office in a Cyprus tax resident company in the relevant tax year.

Why opt for Cyprus tax residency

Cyprus tax resident individuals are subject to tax on their worldwide income however, there is a number of tax advantages which they may benefit from:

a) General tax incentives

The below income tax exemptions are of particular interest to individuals who wish to become Cyprus tax residents:

i. An exemption of 50% of the remuneration arising from employment exercised in Cyprus by individuals who were not Cyprus tax residents before the commencement of employment, provided that they earn an annual remuneration of over Euro 100,000. The exemption is available for 10 years.

ii. An exemption of 20% of the remuneration arising from employment exercised in Cyprus by individuals who were not Cyprus tax residents before the commencement of employment. The maximum amount which may be exempt is €8.550 annually and the exemption applies for a period of 5 years starting from the tax year following the year of commencement of the employment with the last eligible tax year being 2020.

iii.An exemption of remuneration arising from salaried services provided outside Cyprus for more than a total of 90 days in a tax year to a non-Cyprus resident employer or to a foreign permanent establishment of a Cyprus resident employer.

iv. Exemption of dividend income from income tax.

v. Exemption of profit from sale of securities (for example shares, bonds, debentures) from income tax.

vi. Exemption of interest income (except interest income arising in the ordinary course of business activities of the individual) from income tax.

a) Non-Domicile rule

Cyprus tax resident individuals who are non-domiciled in Cyprus are exempt from Special Defence Contribution (‘SDC’) on income derived from dividends, interest or rent.

The concept of domicile is defined by law and it includes both domicile by origin and domicile by choice. Domicile by origin refers to the place of birth and is applicable by default and domicile by choice applies in cases where the individual has chosen to leave the place of birth to permanently reside in another country.