Over the last three decades, the taxation landscape for UK expats living in Cyprus has witnessed significant changes, influenced by evolving bilateral relationships, changing economic conditions, and modifications to taxation policies. This article delves into the history of taxation for UK expats in Cyprus and discusses the key milestones that have impacted their financial lives over the years.

The 1990s: Early Years of Tax Treaties and Attractive Tax Incentives

In the early 1990s, Cyprus was an attractive destination for UK expats due to its relatively low tax rates and the Double Taxation Treaty between the two countries, which was signed in 1974. This treaty aimed to eliminate the double taxation of income earned in one country by residents of the other country. The agreement allowed UK expats to benefit from a range of tax incentives and concessions, including reduced tax rates on pensions, dividends, and interest income.

The 2000s: Cyprus' Entry into the European Union and New Tax Regime

Cyprus joined the European Union in 2004, and this had significant implications for UK expats living in the country. As part of its accession to the EU, Cyprus was required to harmonise its tax legislation with EU standards. Consequently, Cyprus introduced a new tax regime in 2003, which included changes to the personal income tax rates and the introduction of a corporate tax rate.

The new tax regime continued to offer tax advantages to UK expats, such as a low tax rate on pension income (5% above €3,420) and a tax exemption on interest and dividend income for non-domiciled individuals. The alignment with EU standards, however, did mean that some tax loopholes were closed, and overall tax compliance requirements increased.

The 2010s: Austerity Measures and the Tax Landscape

Following the global financial crisis of 2008, Cyprus implemented a series of austerity measures to tackle its financial issues. These measures led to an increase in taxation for both Cypriot residents and expats, including UK nationals. Income tax rates were increased, and several tax exemptions were reduced or abolished.

In 2015, Cyprus introduced the Non-Domiciled (Non-Dom) regime to attract high-net-worth individuals and foreign investors. Under this regime, non-domiciled individuals were exempt from paying taxes on dividends and interest income for 17 years, offering significant tax benefits to UK expats who met the criteria.

Post-Brexit: Impact of the UK Leaving the European Union

The UK's departure from the European Union on January 31, 2020, brought new challenges for UK expats living in Cyprus. Brexit has led to uncertainty surrounding the taxation of pensions and other income sources. Moreover, UK expats in Cyprus now need to comply with different rules for residency and taxation.

Despite the challenges, the Double Taxation Treaty between the UK and Cyprus remains in force, ensuring that UK expats do not face double taxation on their income. However, the future of taxation for UK expats in Cyprus will depend on how the bilateral relationship between the two countries evolves in the coming years.

In summary

The history of taxation for UK expats in Cyprus has been marked by significant changes over the last 30 years, driven by evolving political and economic landscapes. While Cyprus has historically offered attractive tax incentives for UK expats, the future remains uncertain, especially with the ongoing impacts of Brexit. As a result, it is crucial for UK expats in Cyprus to stay informed about the latest tax regulations and consult with tax professionals to ensure compliance with the evolving tax landscape.