Tax benefits of Cyprus

Cyprus offers one of the most attractive tax regimes in Europe, making it a top choice for individuals, businesses, and investors seeking tax efficiency. The island’s favourable tax policies, coupled with its strategic location and high standard of living, create an ideal environment for personal and corporate financial planning.

Key Tax Benefits for Individuals

1. No Inheritance or Wealth Tax:
   • Cyprus has no inheritance tax, wealth tax, or gift tax, allowing individuals to pass on assets without any tax burden.
2. Non-Domiciled (Non-Dom) Tax Status:
   • Expatriates and new residents can enjoy 17 years of tax-free status on dividends, interest, and rental income earned outside Cyprus.
   • No Special Defence Contribution (SDC) for non-domiciled individuals.
3. Low Income Tax Rates:
   • Personal income tax rates are highly competitive, with significant exemptions:
   • First €19,500 of annual income is tax-free.
   • Maximum tax rate is 35%, applied on incomes above €60,000.
   • Generous allowances for income from pensions, overseas employment, and other sources.
4. Foreign Pension Tax Relief:
   • Pension income from abroad is taxed at only 5% for amounts exceeding €3,420 annually.
5. Capital Gains Tax (CGT):
   • No capital gains tax, except on the sale of real estate located in Cyprus.
6. Tax Exemptions for New Residents:

• • High-earning expatriates benefit from an income tax exemption of 50% on annual income exceeding €100,000 for up to 17 years.
  • A 20% tax exemption (up to €8,550) applies to foreign employment income for individuals earning less than €100,000.

Corporate Tax Benefits

1. Low Corporate Tax Rate:
2. Dividend Income Exemption:
   • Dividends received by Cypriot tax-resident companies from other companies are tax-free under specific conditions.
3. No Withholding Taxes:
   • No withholding tax on dividends, interest, or royalties paid to non-residents.
4. Intellectual Property (IP) Tax Regime:
   • Cyprus offers an 80% tax exemption on worldwide income derived from IP assets, leading to an effective tax rate of 2.5% or lower for qualifying IP revenues.
5. Double Tax Treaties:
   • Cyprus has an extensive network of over 65 double tax treaties, minimizing withholding taxes and avoiding double taxation.
6. Group Relief:

• • Companies within the same group can offset losses against each other, optimizing tax liabilities.

Other Tax Incentives

1. VAT Rates:
   • Standard VAT rate is 19%, but reduced rates of 5% and 9% apply to certain goods and services, such as pharmaceuticals, food, and housing for first-time buyers.
2. No Exit Taxes:
   • Companies and individuals relocating to or from Cyprus face no exit tax on transferred assets.
3. Shipping Taxation:
   • Cyprus offers an exceptional tonnage tax system for ship owners, operators, and charterers, with no tax on shipping profits, dividends, or capital gains from ship sales.
4. Tax Benefits for Startups:
   • Innovation and research-focused startups enjoy tax breaks, including deductions for R&D expenses and income from qualifying IP rights.

Residency and Taxation

1. Tax Residency:
   •  Individuals become tax residents if they spend 183 days or more in Cyprus in a calendar year.
   • Alternatively, under the 60-day rule, individuals can qualify as tax residents if they:
   • Spend at least 60 days in Cyprus.
   • Have no other tax residency.
   • Have business ties, employment, or own a property in Cyprus.
2. Corporate Tax Residency:
   • Companies are considered tax-resident if they are managed and controlled in Cyprus, regardless of registration jurisdiction.

Conclusion

Cyprus’s tax framework combines low rates, extensive exemptions, and strategic advantages to attract individuals, businesses, and investors worldwide. Whether you’re planning to relocate, establish a business, or invest, Cyprus provides unparalleled opportunities to optimize your tax position.

At Lextrus Real Estate, we collaborate with experienced tax advisors and accountants to ensure our clients fully leverage these benefits, making Cyprus not just a place to live but a cornerstone of financial success.