Compared to many countries, Cyprus has flexible and "democratic" tax system.
For example, if you earn up to €19,500 per year, the tax rate is 0%. It looks much more attractive than the proportional tax system.
Let's take a closer look.
Personal income tax depends on your income and is calculated as follows:
- 0% for income from 0 to € 19,500
- 20% on income from € 19,501 to € 28,000
- 25% on income from € 28,001 to € 36,300
- 30% on income from € 36,301 to € 60,000
- 35% for income over € 60,000
How can an individual become a Cyprus tax resident? It's pretty simple. The person just need to meet the the following criteria:
- To have a place for residence in Cyprus (to own real estate or to rent housing for a long period as short-term rent does not fit the condition)
- To live more than 183 days a year in Cyprus within one calendar year
- To not have the status of a tax resident of another state
- To own a business or work in Cyprus
How the days of stay in Cyprus are calculated:
- The day of arrival in Cyprus is considered the day of stay in the territory of the state
- The day of departure from Cyprus is counted as a day out of the country
- If you entered and left Cyprus on the same day, it will be counted as one day of stay
- If you left and entered the territory of Cyprus on the same day, then the day is counted as one day outside the Republic.
However, there are some nuances that everyone needs to know about.
The Republic of Cyprus, in order to attract individuals, has developed a Non-Domicile status. What are its advantages?
Foreign citizens, as well as Cypriots who received citizenship not from the moment of birth, have the right to obtain Non-Domicile status for 17 years. This status exempts the owner from paying taxes on the following types of passive income:
Interest or dividends from the deposit
Thus, if somebody has gained the tax resident status, they can receive tax-free dividends.
But from March 1, 2019, a contribution to the social insurance service in Cyprus was introduced. It is named GESY, it provides for a tax rate on passive income. The contribution is made from salaries, as well as other income, including interest or dividends from the deposit, as well as rent and royalties. But here it is worth noting that the contribution is made from the first €180,000 of income. The rate from March 01, 2020 is 2.65% for persons receiving passive income.
How to obtain Non-Domicile status?
To obtain Non-Domicile status, you need to do the following:
- Register at the local tax office, if you have not already done so, and receive a Tax Identification Code (TIC). To do this, you must submit a completed TD2001 tax form. You can download the form from the website of the Cyprus Tax Administration at this link.
- Submit to the tax office the originals of the completed TD038 and TD38QA forms, as well as their copies. The forms can be downloaded from the website at this link.
- Show your foreign passport and alien registration certificate (ARC), as well as their copies.
Processing takes an average of a week, depending on the workload of the Cyprus Tax Department.
Also, to obtain status, you can seek the help of a specialized lawyer.
If you do not have Non-Domicile status, then dividends are taxed at a rate of 17%, and passive income are of 30%.
Therefore, if you have the opportunity to obtain, this status allows you to legally minimize taxes for the next 17 years.