New, additional Cyprus tax residence test

Cyprus has introduced new criteria that could make you resident for tax purposes. There are actually many advantages to living in Cyprus.

The Cyprus Parliament has voted an addition to their current simple ‘183 days’ residence test to include an additional three criteria which could make an individual resident for tax purposes.

This will not affect you if you are already living in Cyprus for 183 days a year.

Current residence rule

Cyprus currently has a very simple residence rule – an individual is regarded as tax resident if they cumulatively spend more than 183 days physically present here during a calendar year (the tax year).

New, additional rule

Besides the above rule, an individual will now also be resident in Cyprus if they meet all the following criteria:

1. They spend more than 60 days in Cyprus each tax year; and
2. They carry out any business or are employed in Cyprus or are an officer (director) of a Cyprus resident company; and
3. They maintain a permanent residence in Cyprus (owned or rented).

Note, however, that this will only make you Cyprus resident if you are not tax resident elsewhere and do not spend 183 days in another country per annum.

Once effective, this will apply for the current tax year, which began on 1st January.

Will this affect you?

This is unlikely to make any difference to those already living permanently in Cyprus or planning to do so. It will only apply to people spending a relatively short time here and who have other connections with Cyprus without being resident elsewhere.

It may catch (and probably actually benefit) some individuals who move around a lot, or who are not resident anywhere (so-called ‘fiscal nomads’), giving them a permanent base. Given the beneficial nature of the Cyprus tax regime for non-domiciles, this would not necessarily be a bad thing.

Reminder of residence rules

Generally, a day of arrival counts as a day of residence (even if you leave again later the same day) and a day of departure counts as a day of non-residence (even if you come back the same day).

Cyprus takes a split-year approach. If you arrive in the second half of the year, you will be tax resident from 1st of January of the following year, assuming that you stay for more than 183 days in that year. If however you arrive on, say 30th April, and you are in Cyprus for more than 183 days that year, then you will be tax resident from 30th April.

It is possible to meet the tax residency criteria of both Cyprus and UK simultaneously. However, you can only be tax resident in one country, so the UK/Cyprus Double Tax Treaty “tie-breaker” rules will determine in which country you are resident for the purpose of taxes covered by the agreement.

Cyprus tax advantages

It is actually beneficial to be resident in Cyprus compared to many other countries, as the tax regime provides many advantages:

• Cyprus tax residents are liable to income tax on their worldwide income, but the first €19,500 is tax free.
• Interest and dividends are liable to “defence contribution” instead of income tax, but non-Cyprus domiciles are exempt. This means foreigners generally do not have to pay this tax until they have lived here for 17 years (see below). Rental income is liable to both income and defence tax.
• You can choose whether your foreign pension income is taxed at the income tax rates or a flat 5% rate (with the first €3,420 tax-free).
• All UK source pension income is only taxable in Cyprus and not subject to UK tax. With most other countries, government service pensions remain taxable in the UK.
• There is no capital gains tax on the sale of shares. When it comes to property, only real estate in Cyprus is taxable.
• There is no inheritance tax in Cyprus.

Cross-border tax planning can be very complex, particularly if you have assets and/or spend time in more than one country. The global new automatic exchange of information regime makes it even more important for you to get it right. You need advice from a firm with in-depth knowledge of both tax regimes and the interaction between them.

Blevins Franks has offices in the UK and Cyprus, as well as France, Spain, Portugal and Malta, and over 40 years’ experience providing cross-border tax, estate planning and investment solutions to British expatriates. Please contact us if you would like more information on residence and taxation in Cyprus or would like to discuss your situation with one of our Cyprus financial advisers.

The 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.