Important Changes for Expatriates In Cyprus

21.09.15

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Cyprus made two significant legal changes in July 2015 which affect UK nationals living there.

Cyprus made two significant legal changes in July 2015 which affect UK nationals living there.

Defence contributions

On 9th July 2015 the Cyprus parliament passed a new law designed to attract high net worth individuals to live in Cyprus. It came into effect on 16th July 2015.

Under this law, residents who are non-Cyprus domiciled no longer have to pay defence contribution on their interest earnings (currently 30%), dividends (17%) or rental income (3% of 75% of income). This is regardless of whether the income is actual or deemed and of whether the income is earned in Cyprus or overseas.

Domicile in Cyprus is determined by its Wills and Succession Law. You are domiciled, or deemed domiciled, if:

  • You have a Cyprus domicile of origin
  • You have acquired a domicile of choice in Cyprus
  • You have been resident here for 17 out of the 20 Cyprus tax years prior to the relevant year.

So, if you do not have a Cyprus domicile of origin or choice, and have not lived here for 17 out of the last 20 years, you are no longer liable to defence contributions (until/unless your situation changes).

UK nationals need to consider how being non-Cyprus domiciled could impact their UK inheritance tax position. Specialist advice is needed here.

This new law is very welcome news, though it is worth noting that regardless of this change, arrangements are available in Cyprus which offer significant tax advantages, such as tax free withdrawals and roll up of growth. Take personalised advice.

Wills and Succession Law

On 3rd July 2015 “section 42” was removed from Cyprus’ Wills and Succession Law. This section allowed UK and Commonwealth nationals to use their will to freely dispose of their estate, so you could divide up your property and assets however you wished.

Cypriots themselves have to follow a forced heirship regime where the majority of an estate must pass to the surviving spouse and children, in defined proportions. This law now also applies to all foreign nationals living here. This is a significant change for most UK nationals who are not used to such restrictions (Scotland and Northern Ireland do have some).

The good news is that a new EU succession regulation (‘Brussels IV’) came into effect on 17th August and allows expatriates to opt for the law of their country of nationality to apply on their death, as opposed to that of their country of residence. This choice must be made in your will, before you die, otherwise Cyprus law will apply.

Other changes affecting expatriates

Retirees living here are also affected by the new UK pension regime which started in April 2015. The new ‘freedom’ gives us many more options on how we use our pension funds, but it is important to take your time, ensure you understand all the implications of each option, and choose the one that is right for you.

A new global automatic exchange of information regime starts next year, which goes much further than the current system. You should be aware of what information will be shared with the Cyprus authorities about your investments and assets, and ensure you are declaring all the income you should be here. Many expatriates get confused over whether they should pay tax in Cyprus or the UK.

 

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Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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