Loading...

Taxation is one of the many advantages of living in Cyprus. There is a high income tax threshold, special rates for foreign pensions and interest can be tax free for 17 years. There is no capital gains tax on shares and no local inheritance tax.

Are you living in or thinking of moving to Cyprus? We think you have made an excellent choice as there are so many benefits to living on the island. We could wax lyrical about the weather, way of life, friendly people, beaches and countryside, but since this is a finance column we should probably stick to that – as it happens, taxation is one of the advantages of living in Cyprus.

Income tax

As a resident of Cyprus, you are taxable on your worldwide income. Certain income, such as bank interest and dividends, is exempt from income tax but taxable in the form of ‘defence contributions’ (see below). Rental income is subject to both income tax and defence contributions.

Your first €19,500 of income is tax free. After that rates start at 20% and rise progressively to 35% for income over €60,000.

One of the biggest advantages for retirees is that, if you have UK source pension income, under the UK/Cyprus double tax treaty the income is taxable solely in Cyprus. This applies to all pension income, whether paid by the UK government, an occupational pension or a private pension fund. This is unusual ¬– in most other countries, government service pensions remain taxable in the UK (but may also be taken into account for income tax calculations in the country of residence).

Foreign pension income receives special treatment in Cyprus, and you choose how it is taxed:

  1. At a flat rate of 5% on the excess of €3,420 (this sum being exempt)
  2. At the normal scale rates of income tax.


You can choose the method that works best for you each year.

Any questions? Ask our advisers for help

Defence contributions – 17 years exemption

The “defence” levy applies to worldwide investment income of individuals who are resident and domiciled in Cyprus, at the following rates.

  • Interest – 30% (or 3% if your income is less than €12,000)
  • Dividends 17%
  • Rental income – 3% (on gross income less 25%).


Since July 2015 non-Cyprus domiciles do not have to pay defence contributions. Generally, you will be considered Cyprus-domiciled if you were born in the country or you have been resident for 17 out of the last 20 years. So most UK expatriates will escape this levy for their first 17 years of residence.

Note that this could affect a claim to be non-UK domicile for UK inheritance tax purposes (see below). If necessary seek advice on tax-efficient ways of holding your investment capital.

Capital gains tax

There is no capital gains tax in Cyprus on the sale of shares.

It is only payable on gains arising on the sale of real estate located in Cyprus (regardless of whether you are resident or not). So property in the UK or elsewhere is exempt. Where it is due, it is charged at the flat rate of 20%.

There is no capital gains tax on death, or on the transfer of assets between spouses or family members up to three times removed.

Download our Guide to Taxes in Cyprus

Inheritance tax

There is more good news for Cyprus – there is no inheritance or succession tax . Your assets can pass to your heirs without them having to pay any local tax.

Unfortunately this does not mean that British expatriates escape death duties completely. If you remain UK domiciled, as many do in spite of living abroad for years, you continue to remain liable for UK inheritance tax. Assets in the UK are always liable (if above the threshold) regardless of domicile. Seek specialist advice on how to avoid or mitigate it.

Besides the usual £325,000 nil rate band, there is a now an additional family home allowance. It starts at £100,000 for the 2017/18 tax year, increasing to £175,000 by 2020/21. It only applies to residential homes (which can be in Cyprus) left directly to descendants, and higher valued estates do not receive it.

Estate planning

It is important to review your estate planning once you move to Cyprus. One thing you need to be careful about is Cyprus’ succession law. A reform in 2015 brought expatriates under the same ‘forced heirship’ rules as other Cypriots. Regardless of what your will says, the bulk of your estate will be divided among direct family members and cannot be left feely to whomever you like.

However 2015 was also the year the EU succession regulation came into force. This allows foreign nationals to opt, through their will, for the succession law of their country of nationality to apply on their death, instead of that of their country of residence. However you should take specialist advice first. It is unclear how this works in practice and it could add costly delays to the probate process. There are alternative options to ensure your estate is distributed as you wish, so you should establish the most suitable approach for your individual circumstances.

Pensions

It is worth reviewing your pension funds when you move to Cyprus.

There are many options for your pensions these days, under the UK pension freedom rules, and you need to understand how they all work and consider which would work best for you. The Cyprus taxation regime can provide opportunities for residents. This is a specialist area, you need professional advice. If you have not yet started drawing your pension, seek advice before you do.

Savings and investments

You should also review your savings and investments. A key rule of any investment strategy is that it should be specifically designed around your circumstances, objectives and risk tolerance. Your circumstances change drastically with a move to a new country and retirement, so your strategy needs to be professionally reviewed to establish how it should be adjusted to suit your new life and goals.

It is never too early to seek start planning for your move or seek advice from a Cyprus based financial adviser. The sooner you carry out your wealth management planning, the sooner you can get on with enjoying your new life in Cyprus.

Find out more about the Cyprus office and contact one of our advisers

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.