New Health Tax for Cyprus Tax Residents
The new Cyprus Health Tax continues to cause confusion for Expat families and businesses.
The complications come from a number of different directions and this is the next area we will explore in our series on tax issues affecting Expats for 2020.
In the first article in this series, we looked at Negative Interest Rates in Europe. The second in our series considered new Capital Gains tax changes. The third article relates to Inheritance Tax as the fastest rising tax in the UK and its potential impacts for Expats. We hope you find the series useful.
Health Tax for Cyprus Residents
If working in Cyprus and paying social insurance, or receiving pension or investment income from Cyprus, the health tax is taken at source. No problem there then.
But this is a new tax. It is not connected to any other Cyprus tax collection. Targeting all tax residents, whereas previous and other tax laws were targeted towards and benefited specific groups (including Expats).
Expats can pay a flat rate of 5% tax on pensions worldwide. Non-dom Expats can pay 0% tax on dividends and bank interest. Expats with overseas earnings outside Cyprus had no Cyprus liability. Until now.
The new health tax is different. It is payable by everyone, on worldwide income, on all types of income.
Who pays Cyprus Health Tax?
In addition to earned income, the Cyprus Health Tax is payable on pension income, and investment and savings income, rental income and gifts, and capital gain sales.
Even if these transactions are outside Cyprus, even if the taxable entity (individual or business) has no right to receive any healthcare.
Who receives Cyprus Healthcare?
The people who qualify for Cyprus universal healthcare are limited. They include:
Cypriot nationals
Expats Living and Working Abroad in Cyprus and paying Social Insurance
EU Expats with a Health Transfer certificate like an S1 from their home country (usually retired, but could be other working or long-term ill people)
Permanent resident EU Expats registered to be Living and Working Abroad in Cyprus for more than 5 years
Dependent family of the above categories
If your work is outside Cyprus, but your business or tax residency remains in Cyprus, then the Cyprus Health Tax is applicable on worldwide earnings. However, you don’t qualify for healthcare just because you paid the tax.
How much Cyprus Health Tax is due?
This is again, complicated. Different rates for employers, employees, the self employed and for everything else.
The tax is introduced during the tax year 2019. As at 1st March, not the start of a tax year or a quarter date. Tax is due from this time.
This could already have been paid at source, but it still needs declaring in a 2019 tax return.
A further complication then arises in 2020, when the rates go up for each category from 1st March 2020 (again, mid-year). A second year of complicated calculations will follow.
Any worldwide income of any kind, not taxed at source in Cyprus, must now be added to a Cyprus Tax return for the first time for 2019.
These annual tax returns are due from 1st April to be submitted within 3 months by the end of June.
This return will allow the additional Cyprus Health Tax to be calculated, assessed and paid, noting that you could have already self-assessed and paid some of this tax.
The Cyprus Health Tax Rate is:
1.7% for 2019,
and,
2.65% for 2020.
This is a flat rate tax on worldwide income, with no allowances.
Income in Cyprus, where social insurance has been paid, is not subject to additional tax.
Expats working overseas with income earned outside Cyprus would pay 1.7% Cyprus Health tax.
Expats with rental income in the UK or EU would pay the additional Cyprus Health Tax, even if no income tax was paid on a declared UK tax return.
Dividend income worldwide from investments, share portfolios and business could be exempt from SDC Dividend Tax at 17%, but will still be liable for the Cyprus Health Tax.
A sale of a business, asset or investment can (in certain situations) be liable for the health tax too.
The added scope of liability for the Cyprus Health Tax means it was decided in November 2019 that all Cyprus tax residents must complete a tax return each year, starting with a return for 2019. Even if the tax resident was previously exempt from returns because no income or other taxes were due.
Why? because everyone will have some income liability to the new Cyprus Health Tax.
Cyprus Health Tax perspective
Expats with exemptions (e.g. having non-dom/non remittance/overseas pension income), will now have this one tax liability, adding a 1.7% tax rise for Expats in 2019.
For £1000 of income the tax due is £17.
If you benefit by gaining universal Cyprus state healthcare, then it is a competitive payment against private healthcare.
EU Expats with S1 are exempt from healthcare charges and qualify for Cyprus healthcare as soon as they become resident.
Newly arrived working Expats in Cyprus can gain access to healthcare much more quickly than previously, where it varied from 3 years to never.
All in all, the changes benefit everyone, and everyone shares the cost of healthcare.
However, the complexity of launch periods, rates, decisions on tax return requirements, and the scope of worldwide liability has created confusion for many.
If you need help and assistance making your annual Cyprus tax return before the end of June, or registering your business for social insurance, contact us at www.proactpartnership.com/contact-us
DOWNLOAD OUR FREE BREXIT CHECKLIST FOR EXPATS
To keep in touch with the changes that will come into play during the Transition Period, ProACT Partnership has created a checklist for Expats to monitor. This provides a list of the 10 things Expats should follow during the Transition Period.