How to become a tax resident of Cyprus and optimize taxes

Cyprus has some of the lowest taxes in Europe. The country’s tax system is among the most favorable in the European Union regarding rates, benefits, and opportunities to obtain tax residency status. We have compiled important information you need to know about Cyprus tax residency and tax rates to optimize your taxation.

Becoming a Cyprus tax resident will allow you to optimize your taxation. You are entitled to tax benefits if you own a business, run a company, or are employed on the island. But how do you get tax residency? What are the tax rates? Who is entitled to benefits? And what are the benefits?

Cyprus tax residency: what is it?

Cyprus has two types of tax residency: de facto and declared.

Actual tax residency (domicile) in Cyprus is established if an individual was born or has lived in Cyprus for at least 17 years out of the last 20 years and has been permanently present in Cyprus for more than 183 days per year. In this case, all income received by this person anywhere in the world is taxable in Cyprus.

Declarable tax residency (non-domiciled) in Cyprus is established when an individual is a tax resident in another country but has property, business, or other connections with Cyprus. In this case, income received in Cyprus is taxable in Cyprus, and the Cypriot tax authorities do not tax income received outside Cyprus.

It is important to note that the country has a double taxation system which allows for avoiding double taxation of income earned by individuals in Cyprus and abroad. Double taxation agreements are concluded with more than 67 countries, including Russia, Ukraine, the USA, and most European countries.

To obtain tax residency status in Cyprus, one must apply to the tax authority and submit the relevant documents confirming the presence of actual or declared tax residency.

The Cypriot government introduced the concept of non-domiciled tax residency to attract wealthy foreign individuals to invest in the island’s economy. By acquiring this status, you are exempt from the obligation to pay taxes on passive income. That is, you can receive dividends and interest income tax-free.

Advantages of Cyprus tax residency

Cyprus tax residency has several advantages for individuals and legal entities, including:

• Tax Incentives: Cyprus offers one of the lowest income tax rates in the EU, as well as tax benefits for investments, inheritances, income from foreign securities, and other income.
• Double Taxation: Cyprus has many bilateral tax treaties which protect double taxation of income earned on the island and abroad.
• Security and stability: Cyprus is a stable country with progressive legislation and a member of the EU and UN.
• Opportunities for residents: Tax residents can use various banking and financial services, including asset management, investments, and lending.
• Inheritance: Inheritance of assets located in the country is not taxable.
• Reduced tax burden: Residents can significantly reduce their tax burden with proper structuring of business and financial assets.

However, it should be noted that each situation is different. Before deciding on tax residency in Cyprus, seeking advice from an experienced tax advisor and studying the relevant laws and requirements is necessary.

There are no taxes on the island for non-domiciled tax residents:

• Gains from the sale of securities, including stocks, bonds, and debentures;
• Dividends and interest on loan contracts and royalties;
• property, luxuries, and gifts;
• inheritances;
• As of 2017, property tax in Cyprus has been abolished — owners now pay only the municipal tax, which is 0.1-0.2% of the market value of the property;
• It is possible to choose a special tax regime for overseas pension payments — the first 3,420 € are not taxed, and on the rest of the pension income, the rate is 5%.

For those who are employed in Cyprus:

• Low rates of social security payments from wages;
• 20% tax credit on remuneration from employment for those who have recently moved, namely those who moved before 2020;
• 50% income tax credit if income exceeds 100,000 euros. The benefit is given for 10 years. The critical condition — the person must not be a tax resident of Cyprus before employment.

For those who work outside Cyprus for more than 90 days per year:

• No Cypriot income tax has to be paid on wages from this employment activity.

What taxes do non-domiciled residents have to pay in Cyprus?

Non-domiciled residents of Cyprus are usually taxed only on income derived from sources in Cyprus, that is, on income related to Cypriot sources of income. In other words, if a non-domiciled Cypriot resident receives income from a source outside Cyprus, he is not required to pay tax on that income in Cyprus.

In addition, tax residents of Cyprus, including non-domiciled tax residents, are generally exempt from taxation on dividends received from sources in Cyprus and from taxation on gains from the sale of securities and real estate.

Non-domiciles pay taxes at a progressive rate (from 0 to 35% depending on the amount of income, the first 19,500 € of payment is not taxed). See our article on taxes in Cyprus for tax rates and conditions in 2023.

The following activities are taxable:

• Renting out real estate in the country and outside the country;
• Employment (work for hire) on the island;
• Sale of Cypriot real estate and shares in companies that own Cypriot real estate;
• Commercial activities such as being self-employed.

Non-domiciled residents of Cyprus are generally subject to the following taxes:

• Personal Income Tax — levied on income from sources in Cyprus.
• Corporate Income Tax — levied on profits of companies registered on the island or doing business in the country.
• Property Tax — set on property situated in Cyprus.
• Capital Gains Tax — set on the sale of local properties.
• Value Added Tax — levied on goods and services bought on the island.

How to become a tax resident in Cyprus?

There are 2 main ways. A person is considered a tax resident of Cyprus if they comply with the rule of 183 days or 60 days of residence in the country in a calendar year.

The 183-day rule

The first rule is that to become a tax resident of Cyprus, you must reside on the island for more than 183 days in a calendar year. In addition, other factors may be considered in determining tax residency, such as:

• Center of vital interests: if most of your life is related to Cyprus, for example, you work in the country, have a business, or own real estate here, it can be considered in determining tax residency.
• Intention to live in Cyprus: your plans to live permanently on the island and run your business or invest in real estate here are considered.
• Family ties: the fact that your family resides on the island is considered.

To confirm your Cypriot tax residency, you must contact the tax office and apply with all necessary documents and factors confirming your residence.

The 60-day rule

According to the 60-day rule, an individual must reside in Cyprus for at least 60 days per year to become a tax resident of Cyprus. However, unlike the previous rule, this factor alone is insufficient to become a tax resident. It is also necessary to meet the following conditions:

• Be in Cyprus for at least 60 days in a calendar year and not live more than 183 days in another country.
• Officially work or have business in Cyprus — be a founder or director of a Cyprus company.
• To buy or rent immovable property to live on the island during the tax period and to have a permanent residence.
• Have economic, social, and professional ties with Cyprus, which show an intention to stay permanently on the island.
• Register with the local tax authority as a resident of Cyprus and obtain the relevant status.

All these requirements are mandatory; violation will result in revocation of tax residency status.

How do you count days?

For the 183 and 60 day rules count:

• the day of arrival in Cyprus;
• the day of arrival in Cyprus, even if you left on the same day.

Not counted:

• the day of leaving the island;
• the day of departure, even if you return to Cyprus on the same day.

What to certify with:

• a certified copy of your passport with entry stamps;
• boarding passes;
• electronic tickets.

What to do to avoid double taxation?

To avoid double taxation, provide the tax office of the country of citizenship with a certificate of tax residency in Cyprus. Suitable for countries with which Cyprus has signed a double taxation treaty (including Russia). The complete list of 67 countries can be found here.

A tax residency certificate can be requested for the previous and the current calendar year.

How to get a certificate under the 183-day rule to avoid paying double taxation:

• register with the Cyprus tax authorities and obtain a TIC tax identification number;
• fill in and submit form TD2001 to the tax authority;
• sign a statement that you intend to stay in Cyprus for more than 183 days in the current tax period. If you are unable to comply with this requirement, you will need to apply for a cancellation of your tax residency certificate;
• provide evidence of receipt of foreign dividends or interest;
• provide evidence of the intention to stay in Cyprus for more than 183 days — rental agreement, lease contract, title to the property;
• submit previous years' tax returns;
• make all tax payments;
• indicate for which country you are requesting the certificate.

How to get a certificate under the 60-day rule:

• register with the Cyprus tax authorities and obtain a TIC tax identification number;
• fill in and submit form TD2001 to the tax authority;
• sign a statement that you intend to stay in Cyprus for more than 60 days in the current tax period. If you fail to comply with this requirement, you will need to apply for a cancellation of your tax residency certificate;
• provide evidence of receipt of foreign dividends or interest;
• prepare a copy of your passport with entry and exit stamps;
• provide a copy of your employment contract or proof of legal status as a company owner;
• provide real estate ownership documents or a rental agreement;
• file previous years' tax returns;
• make all tax payments;
• indicate for which country you are requesting the certificate.

Peculiarities of Cypriot tax residency for citizens of Russia, Ukraine, Kazakhstan

Each country has a different interpretation of international regulations on tax residency and the need to report controlled foreign companies (CFCs).

Features for Russian citizens

Russian tax residents of Cyprus are not required to report on their controlled foreign companies. Their bank accounts and structures are not subject to the automatic exchange of tax information with Russia. CFC rules in Russia have been in force since 2015.

For Russian citizens, there is a Treaty on Avoidance of Double Taxation between Russia and Cyprus, which came into force in 1998 and was further amended in 2010 and 2020.

According to this Treaty, personal income tax is levied only in the country where they are tax residents. Thus, if a Russian becomes a tax resident in Cyprus, he is exempt from paying taxes on income in Russia.

In addition, Russians should note that Cyprus has a taxation system based on residence and source of income. Thus, income received from sources in Cyprus is taxed in Cyprus, even if you are not a tax resident. Suppose you are a tax resident of Cyprus but receive income from sources in Russia. In that case, you can apply for a tax refund in Russia per the Treaty on Avoidance of Double Taxation between Russia and Cyprus.

Features for citizens of Ukraine

New rules on controlled foreign companies came into force in Ukraine in 2021. Now tax residents of Ukraine are required to declare foreign companies owned by them and pay income tax in Ukraine.

Necessary: tax residency in Ukraine is determined primarily by the presence of connecting factors — the place of residence and the center of vital interests. The criterion of 183 days is secondary. In other words, to terminate tax residency in Ukraine, all the family must fully move to Cyprus.

If a citizen of Ukraine moves to Cyprus and wants to terminate his tax residency in Ukraine, the following conditions must be met:

• Inform the tax authority that they cease to reside in Ukraine and prepare relevant documentation.
• Reside in Cyprus for at least 183 or 60 days per calendar year and obtain tax residency in Cyprus.
• Terminate tax obligations in Ukraine, including a declaration of income and payment of taxes.
• Submit a tax return in Ukraine for the period before you move to Cyprus and pay all taxes, if any.
• Keep documents confirming the move to Cyprus and the absence of tax residency in Ukraine, including copies of passports, plane tickets, rental agreements, contracts of sale of real estate, etc.

After fulfilling these conditions, a Ukrainian can terminate his tax residency in Ukraine and completely switch to the tax system of Cyprus. However, to confirm your status as a tax non-resident of Ukraine and avoid possible claims from the tax authorities, you must carefully monitor compliance with all requirements and keep the documents confirming compliance with these requirements.

Features for citizens of Kazakhstan

The principle of permanent residence determines tax residency, i.e., being in the country for at least 183 days per year and determining the center of vital interests.

The double taxation treaty came into force on January 17, 2020. Until that moment, residents of Kazakhstan were obliged to declare their income in the country of citizenship, even if they were tax residents of Cyprus. But now Kazakhstanis are in the same favorable conditions.

Under this Convention, if a Cyprus tax resident company disposes of shares or participatory interests in Kazakhstan companies, income derived from such transactions may be exempt from taxation in Kazakhstan as long as the assets of the Kazakhstan companies do not exceed 50% of the immovable property located in Kazakhstan. In addition, active income, such as income from services and others, will be exempt from withholding tax in Kazakhstan, provided that the activities of a Cypriot resident do not create a permanent establishment in Kazakhstan.

How to ensure low taxes in Cyprus?

Suppose the country of your citizenship, for some reason, considers you or your family as their tax residents. In that case, the Cypriot residency will not be decisive — taxes must be paid in the country of citizenship.

To avoid such «niceties» and accidentally not become a tax resident of two countries, the easiest way to create in Cyprus a full-fledged center of your life.

Also, read about how to get permanent residency in Cyprus in 2 months through investment and purchase of the real estate. Permanent residence in Cyprus is attractive to investors, as it not only provides the right to stay on the island without restrictions but also allows you to live in a country with a stable financial climate and low business taxes, receive high dividends from rent, as well as to be confident in the safety and health of their families.

We are also happy to tell you what innovative hubs are and why it is profitable to invest in them. In Cyprus, Innovative Hubs benefit tenant companies (2,5% income tax) and investors in hubs (expected ROI — 5 to 11% per annum).

SPM is your partner in life, business, and investments.

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