3 New Cyprus Tax Savings for Expats 2018/19

ProACT Sam discusses Changes to Cyprus Tax for Expats introduced to benefit Expat family and business Living and Working Abroad.

Cyprus continues to make changes to benefit expat family and business using Cyprus as their tax residence. Common Reporting Standards have been introduced globally between 2016 and 2018 and one key impact is the enforcement of every business and individual having a tax residence to which worldwide income is declared.

Discrete Tax Planning

In the past Expats could become non resident in their home country and no longer pay tax in the UK say. However because there was no exchange of information , or enforcement in the Expats new country of residence then no declaration of pension, bank interest and savings was required, creating a ‘discrete’ tax saving.

Business would use offshore company structures to reduce taxes around the world, with offshore holding companies in low tax locations drawing all profits from high tax countries where a local subsidiary was trading eg UK, Germany, France. Luxembourg is a popular EU location for this type of offshore holding structure, while Cyprus and Malta offer competitive alternatives.

Exchange of Information

Common reporting standards (CRS) shines a light on these discrete tax practices and over time is ensuring compliance by expat individuals and business.

Firstly CRS required all tax agents, banks, property rental agents, dividend payers, investment companies, finance providers, credit card companies - to identify all beneficiaries of income not only by their ID and address but also by the Expat or Business Tax residence and reference number.

Expat contractors, pensions, and business must have one tax residence for worldwide income to keep a bank account or hold investments.

Secondly CRS includes automatic exchange of information between the tax agents, their tax authority and the tax authority of the resident country of the beneficiary of any income.

All Expats income worldwide therefore is reported to their country of tax residence.  

Now every tax authority around the world can verify the income declared in the Expat tax return against what has been paid to them.  Discrete tax planning no longer works for individuals or business and income not reported on a return will be know to your tax authority, and could result in penalties and investigations.

3 Cyprus Tax Saving Changes to Benefit Expats 

1 - In its 2018 Budget Cyprus has reduced the tax on income from interest from 30% to 17%. This means any individual or business with dividend or interest income now will only pay a flat rate of 17% on unlimited income.

This could benefit holding companies and service companies as well as those with a high level of investment in interest bearing securities.  Whereas in the UK a maximum rate of 45% would apply Expats with a Cyprus tax residence will pay a maximum 17% tax rate.

2 - In July 2018 a new Double Taxation (DT) treaty came into force between Cyprus and UK. This confirms the Cyprus 0% tax rates for Expats who are not domiciled but are tax resident in cyprus, for both dividends and interest income. 

This benefits UK Expats saving up to 45% on dividends and bank and/or investment interest.

For a expat contractor who is a cyprus tax resident operating through a service company, there is no limit to the dividends that could be drawn in income at a 0% tax rate.

3 - Cyprus has introduced an innovative tax residence for Expats.  New tax residents now only have to spend 60 days in country to confirm their tax residency.  Normally you need to be in country for 183 days a year to acquire tax residency. Once acquired the law was vague, but generally if you didn’t stay in another country for more than 183 days your tax residence would not change.

CRS brings this into question. You need to have a tax residency.  If no returns of worldwide income are being made, your home country or another tax authority could always come calling.

Now Expat contractors can base themselves in Cyprus with confidence.  Work 10 months a year around the world, but still remain a cyprus tax resident, without challenge form any other tax authority.  With the benefit of low dividend, savings taxes cyprus become a premier Expat Business Location for contractors and business.

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