Cyprus offers a relatively straightforward system for obtaining tax residency status, which is based on the number of days spent physically in the Republic during a calendar year. Cyprus legislation provides two options for individuals to obtain tax residency status: the "183-Day Rule" and the "60-Day Rule."
We'll discuss these below.
The first rule for obtaining tax residency status in Cyprus requires physical presence and residence in Cyprus for at least 183 days during a tax calendar year (from January 1st to December 31st).
According to this rule, an individual becomes a resident for tax purposes if, during the relevant tax year:
- They stay in Cyprus for at least 60 days and do not reside in any other country for more than 183 days, thus not becoming a tax resident of another country.
- They engage in business activities, are employed in Cyprus, or serve as a director of a company registered in Cyprus (with the mandatory receipt of a salary) during the tax year.
- They have a permanent residence in Cyprus as an owner or tenant.
- They are registered with the local tax authorities as a tax resident of Cyprus.
How to Calculate the Number of Days Spent in the Republic of Cyprus:
For both rules mentioned above, the calculation of days is based on entry and exit dates from the territory of Cyprus (through recognized entry points: international airports in Larnaca and Paphos, seaports in Limassol, Larnaca, Paphos, and Latchi).
A day spent in Cyprus is considered a day physically present in the state (regardless of whether the territory of Cyprus was left on the same day). A day of departure from Cyprus is considered a day outside the Republic (regardless of whether re-entry into the territory of Cyprus occurred on the same day). Supporting documents for entry and exit dates include passport stamps, boarding passes, and tickets for water transport.
What Is Non-Domicile Tax Status in Cyprus, and What Does It Offer?
Cyprus legislation introduces the concept of a non-domiciled tax resident of Cyprus. To become a tax resident of the country, as explained above, one must reside in Cyprus for 183 days (or 60 days) in a single calendar year. However, those who permanently reside in the country are assigned a Domicile status, while non-permanent residents are assigned Non-Domicile status (non-domiciled tax resident). Non-domiciled tax residents enjoy several tax benefits.
This status may be granted to a tax resident of Cyprus who has not resided in the country for 17 out of the 20 years preceding the relevant tax year. Native Cypriots are generally domiciled residents.
Tax residents of Cyprus with non-domiciled status are entitled to certain tax exemptions and are not required to pay taxes on the following income:
- Dividend income
- Interest income
- Rental income (rental income is subject to income tax only after a 20% discount)
- Capital gains from the sale of shares, bonds, and similar financial sources
Regarding income subject to special defense contribution (SDC), tax residents of Cyprus with Cypriot domicile status are required to pay a specific tax rate on the following income:
- 17% on dividend income
- 30% on interest income (except corporate and Cypriot government bonds, which are taxed at 3%)
- 2.25% on rental income
For income subject to SDC, income tax for individuals is not imposed except for rental income.
How to Obtain a Cyprus Tax Residency Certificate and Why You Need It?
A tax residency certificate can be requested for the past or current calendar year. Cyprus has a system of double taxation, allowing legal and natural persons who are tax residents of Cyprus but receive income in another country to pay tax on such income only in Cyprus. Such agreements have been concluded with more than 67 countries.
Step-by-Step Guide to Obtaining a Tax Residency Certificate under the 183-Day Rule:
To obtain a tax residency certificate in Cyprus, you need to:
- Register with the tax authorities of Cyprus and obtain a Tax Identification Code (TIC).
- Fill out and submit form TD2001 to the tax authorities.
- Sign a statement that you intend to stay in Cyprus for more than 183 days in the current tax period. If this requirement is not met later, you will need to submit a new statement for the cancellation of your tax residency certificate.
- Provide evidence of your intention to stay in Cyprus for more than 183 days (employment contract, lease agreement, property ownership documents).
- Provide evidence of foreign income received: interest, dividends, capital gains (except for capital gains from the sale of real estate in Cyprus).
- Submit tax declarations for past years if you were a tax resident of Cyprus.
- Pay all applicable taxes.
- Specify the country for which the requested certificate is needed.
Obtaining a Tax Residency Certificate under the 60-Day Rule:
In this case, you will also need:
- Copies of your passport with entry and exit stamps.
- A copy of your employment contract or a document confirming your legal status as a company owner or director.
You will also need to sign a statement indicating your intention to stay in Cyprus for a period of 60 days in the current tax year.
Advantages of Cyprus Tax Residency
Cyprus tax residency remains one of the most attractive in the EU for several reasons, which we have briefly outlined below, as well as numerous programs and additional benefits that we will discuss in our upcoming articles.
The main advantages are briefly presented below:
- Cyprus has one of the most attractive tax systems in the EU, offering various benefits for both legal entities and individuals. Despite common misconceptions, Cyprus is not considered an offshore jurisdiction; instead, it is a low-tax jurisdiction that fully complies with the laws and directives of the European Union, OECD, and international standards.
- Cyprus has concluded more than 60 double taxation avoidance agreements with various countries (certain provisions have been temporarily suspended by Russia).
- Income tax and social contributions are among the lowest in the EU.
- The corporate tax rate is fixed at 12.5%, making Cyprus one of the countries with the lowest corporate tax rates in the EU.
- Income of individuals up to €19,500 per year is exempt from income tax (the tax rate will be 0%).
- Special exemptions for non-domiciled tax residents.
- An attractive Intellectual Property (IP Box) regime, under which 80% of qualifying profits are exempt from taxation.
- Significant tax exemption on remuneration of new employees whose first employment in the Republic of Cyprus commenced from January 1, 2022. Fifty percent (50%) of the income of such employees is exempt from income tax for a period of 17 years, provided that their annual salary exceeds €55,000, and they have not been residents of Cyprus for 12 consecutive years prior to starting their employment in the country.