The Tax Benefits of Cyprus
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Cyprus has long been favoured by expatriates for its favourable tax regime including generous personal allowances, 60 day tax residency (ideal for digital nomads) to tax exemptions for expats with non-domicile status.
Tax Benefits for Non-Dom Expats in Cyprus
Income Tax Rates: Cyprus has relatively low income tax rates compared to many other European countries. Tax rates range from 0% for annual income below €19,500 to a maximum of 35% for income exceeding €60,000.
Foreign Pension Income: For individuals receiving pensions from abroad for services rendered outside of Cyprus, the tax rate is fixed at 5% on amounts over €3,420 per year.
Non-Domiciled Tax Regime: Cyprus tax residents who are considered non-domiciled in Cyprus are exempt from taxation on worldwide dividend and interest income. This exemption can be particularly beneficial for individuals with substantial income from these sources.
No Inheritance Tax: Cyprus does not levy any inheritance tax, which can be a significant advantage for estate planning.
No Wealth Tax: There is no wealth tax imposed in Cyprus, which benefits those with high net worth.
Capital Gains Tax Exemptions: Capital gains tax is only imposed on the sale of real estate located in Cyprus or shares of companies that own real estate in Cyprus, excluding shares listed on any recognized stock exchange. Profits from the sale of securities (like bonds and shares) are also exempt from tax.
60-Day Rule for Tax Residency: Under the 60-day rule, individuals who do not spend more than 183 days in any other single country and are not tax residents in another country can become tax residents of Cyprus if they meet certain conditions (such as maintaining a home in Cyprus and conducting business in Cyprus). This makes it easier for business people who travel frequently to establish tax residency in Cyprus.
Personal Deductions and Allowances: Cyprus offers various deductions and allowances on personal income, including deductions for social insurance, medical insurance, and donations to charities.
Foreign Property Rental Income: Income from property rental located outside Cyprus does not need to be declared in Cyprus, though it may still be taxable in the expat's home country.
Tax on Foreign Income: For expats who work abroad for more than 90 days per year, Cyprus allows taxation only on income remitted to the country. This means that income earned and kept outside Cyprus may not be taxed by Cypriot authorities.
The New Health Tax
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Despite these benefits, all expatriates with worldwide income must now account for a new tax requirement:
Health Tax on Worldwide Income: Starting this year, there is a 2.65% health tax on worldwide income for expats. This includes income from overseas contracts, dividends, interest, and property rental, regardless of whether these sources are taxed elsewhere.
Application to All Income: Whether earned through remote work, local contracts, or overseas endeavors’s, all forms of income are subject to this health tax. For example, every €1,000 of income will incur a €26 health tax.
Compliance and Tax Returns
Mandatory Tax Returns: This health tax does not qualify an expat for the health system in Cyprus, but it requires compliance through a tax return filing. There are few exemptions, emphasising the importance of understanding one’s tax obligations.
Professional Advice: Navigating these tax regulations can be complex, particularly with the changes in tax laws. Expats are advised to seek professional guidance to ensure compliance and to optimise their tax strategy.
While Cyprus offers attractive tax benefits for expats, particularly those with non-domicile status, the new health tax imposes an additional layer of tax on worldwide income. It is crucial for expats to stay informed about these changes and to consult tax professionals to ensure they meet all legal requirements and make the most of their financial opportunities in Cyprus.
For personalised advice and more detailed information, expatriates can contact us.