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On 1 February 2022, the Tax Department of Cyprus issued a circular(1) to clarify the tax treatment of physical persons in Cyprus, based on the 60-day rule. This article explores the issue of tax residency in Cyprus.
What counts as tax residency in Cyprus?
According to the Income Tax Law, the term “resident of the Republic” includes – in addition to persons who reside for 183 days in Cyprus – persons who:
- remain in Cyprus for one or more periods of a minimum of 60 days;
- do not remain in another state for one or more periods exceeding a total of 183 days;
- are not a tax resident in any other state for the same tax year;
- operate a business in Cyprus, are employed in Cyprus or hold a position in a company that is tax resident in Cyprus, and maintain such position until 31 December of each tax year (ie, the business, employment or holding of office does not end before the end of the fiscal year); and
- maintains a permanent residence in Cyprus (either owned or rented).
The above conditions must all be met for each tax year.
Such tax treatment can be applied without violating the third condition (ie, that a person must not be a tax resident in any other state for the same tax year) where an individual – for a part of the tax year – is considered a tax resident of another state that has a different tax year to that of Cyprus. For example, the tax year in the United Kingdom begins on 6 April and ends on 5 April of the following calendar year. This is, however, subject to approval from the Cyprus Tax Commissioner.
With regard to the fifth condition (ie, that a person must maintain a permanent residence in Cyprus), such a permanent residence must be purchased or rented for permanent use and be available all year round. Renting a residence for only 60 days will not be sufficient.
The fourth condition (ie, that a person must hold a position in a company that is a tax resident in Cyprus) is only considered to be met if the individual personally holds the position of director until the 31 December of the same tax year and that this is recorded in the register held by the Registrar of Companies.
Payment of special defence contribution
A person who is considered a tax resident of Cyprus according to the 60-day rule must pay the special defense contribution, provided that they are also domiciled in Cyprus.
Issuance of tax residence certificate
A tax resident certificate, issued to persons who meet the 60-day rule, may be issued before the expiry of the 60 days, provided that:
- evidence is provided for the exercise of a business, employment or holding of an office in Cyprus and the maintenance of permanent residence in Cyprus;
- evidence is provided regarding the receipt of income from abroad; and/or
- information is provided to the Cyprus Tax Commissioner justifying the reasons why a certificate is required prior to the expiration of the 60 days.
All supporting documents submitted to the Tax Department in order to obtain the required tax residency certificate must be duly stamped and translated if the documents are in a language other than Greek or English.
Benefits of Cyprus tax residency
The benefits of Cyprus tax residency include the following:
- The individual will be exempt in Cyprus from taxation on worldwide dividends and “passive” interest income;
- Profits from the sale of securities/shares will be exempt from tax. “Securities” includes shares in local or foreign companies, bonds, debentures and options, except where the value of the shares derives from the value of immovable property in Cyprus.
How to establish tax residency in Cyprus
For an individual who would like to establish tax residency in Cyprus, one of the first considerations should be whether they are resident in any other state and whether they have stayed or intend to stay in any other state for one or more periods exceeding 183 days. The significance of this is that the individual may end up with dual tax residencies and, especially where no double tax treaties are in place, this may lead to double taxation.
Individuals must bear in mind that each state has its own legally defined territory and its own definition of “residency”. Territory is simple to understand and is considered fairly clear. Residency issues require closer examination, as states determine residency in different manners. For physical persons, residency may, for instance, be attributed to the number of days present, business ties, home or even nationality, among other factors.
Once this has been ascertained, an individual will need to prove the dates on which they entered and left all countries, including Cyprus, during the year under review. A schedule should be kept with the specific days spent in each country, together with relevant supporting documentation such as a stamped passport, boarding passes and electronic tickets.
A title deed or rental agreement is also required when applying for a residency certificate, along with an employment contract that is valid as of the 31 December of the respective tax year. These contracts need to be stamped and translated if the documents are in a language other than Greek or English.
If an individual is considering relocating to Cyprus, expert advice should be taken with respect to Cypriot as well as cross-border tax implications arising from the relocation.
The information provided by A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.
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