Tax planning in Cyprus is highly beneficial due to its favorable tax regime for individuals and businesses. Here’s an in-depth look at the key strategies and considerations:
Individual Tax Planning
1. Tax Residency
- 183-Day Rule: You become a Cyprus tax resident if you spend more than 183 days in the country during a calendar year.
- 60-Day Rule: Alternatively, you can qualify if you:
- Spend at least 60 days in Cyprus.
- Own or rent a permanent residence in Cyprus.
- Do not reside in any other country for 183 days or more.
- Are employed or conduct business in Cyprus.
2. Non-Domicile Status
- Benefits:
- Exemption from Special Defence Contribution (SDC) taxes, including:
- Dividends (0% tax).
- Interest income (0% tax).
- Rental income (taxed only at 2.25%).
- This status applies for 17 years after becoming a Cyprus tax resident.
- Exemption from Special Defence Contribution (SDC) taxes, including:
3. 50% Tax Deduction
- For individuals earning over €55,000 annually, 50% of the salary is tax-exempt for 17 years (subject to conditions).
4. Capital Gains Tax (CGT)
- CGT is only applied to:
- Gains from the sale of Cyprus immovable property.
- Shares in companies holding such property.
- No CGT on foreign assets like shares, bonds, or property abroad.
5. Low Personal Income Tax Rates
- Progressive tax system: The first €19,500 of annual income is tax-free.
Corporate Tax Planning
1. Corporate Tax Rate
- One of the lowest rates in the EU at 12.5%.
2. Intellectual Property (IP) Box Regime
- Effective tax rate on qualifying IP income can be as low as 2.5%.
3. Dividends and Capital Gains
- Dividends received by a Cyprus company are generally exempt from corporate tax (subject to conditions).
- No withholding tax on dividends, interest, or royalties paid to non-residents.
4. Double Tax Treaties
- Cyprus has agreements with over 65 countries, minimizing or eliminating withholding taxes on cross-border transactions.
5. Group Relief
- Losses from one group company can offset profits of another within Cyprus.
6. Holding Company Benefits
- Cyprus is ideal for holding companies due to:
- Tax exemptions on dividends.
- No CGT on subsidiary disposals.
- Benefits from double tax treaties.
Other Tax Planning Strategies
1. Trusts and Estate Planning
- Cyprus International Trusts (CITs):
- Offer tax advantages for wealth management and asset protection.
- Income earned by the trust is tax-exempt if beneficiaries are non-residents.
2. Real Estate Investments
- No property tax in Cyprus.
- Reduced VAT rates (5%) for first-time residential buyers.
3. Residency and Citizenship Programs
- By investing in Cyprus, you can:
- Become a resident.
- Leverage tax benefits in a business-friendly environment.
Steps for Effective Tax Planning
1. Determine tax residency status and structure your time to maximize benefits.
2. Utilize the non-domicile regime and personal income tax deductions.
3. Optimize corporate structures to benefit from the low tax rate and double tax treaties.
4. Set up a Cyprus International Trust for estate and succession planning.
5. Consult a local tax advisor for tailored compliance and strategies.
Need expert assistance? Contact us today to develop
info@ymcconsultings.com
a customized tax plan that aligns with your goals!
