The Cyprus Government in an effort to boost the competitiveness of the newly launched Cyprus Non-Domicile Scheme has recently proceeded to also amend the criteria that need to be satisfied by any individual who wishes to become a Cyprus tax resident.
These significant amendments to the Cyprus tax environment have now let to new advantageous co-ordinates for all persons interested in obtaining the Cyprus Tax-Residency and thus enjoy the country’s beneficial tax regime.
More specifically, as per unanimous approval by the Cyprus Parliament of a recent bill of date 14 July 2017, the classification of ‘Cyprus Tax Resident Individual’ can now be duly granted to any person who do not spend more than 183 days within a tax year at any other State, and is not a tax resident at any other country within that same tax year.
From thereon, the voted amendment to Article 2 of the Income Tax Law N118 (I)/02 in reference to the criteria for determining the rights of an individual to be considered a Cyprus tax resident requires a triple criterion to be satisfied which is comprised of the following:
- The individual is expected to spend a minimum of 60 days within the year under assessment in the Republic of Cyprus
- The individual maintains a permanent housing residence in Cyprus which can be either owned or rented
- The individual carries out any kind of business within Cyprus or is employed in Cyprus, or holds an office as a Director of a Company which is tax resident in the Cyprus jurisdiction, starting at any time during the tax year under consideration and throughout to the completion of that year.
Additionally, the very advantageous applicable tax rate bands for Cyprus tax residents are currently the following, and these rates are applicable to the entirety of their income earned worldwide.
Income bands of net chargeable income with net chargeable income being the resulting net Income following all allowable deductions as per the Cyprus Income Tax Regime:
- For up to € 19.500: Tax rate is Nil on the first €19.500
- For the €19.501 to € 28.000: Tax rate is 20%
- For the next € 28.001 to € 36.300: Tax rate is 25%
- For the next € 36.301 to €60.000: Tax rate is €30%
- For over €60.000: Tax rate is 35%
Thus, if you are interested in this Scheme, here at White November Corporate Services, our highly experienced teams can readily offer you the necessary detailed and specific guidance tailored to your requirements towards obtaining the advantageous Cyprus tax residency as well as the non-domicile individual status, and we look forward to attending your tax residency plans and enquiries.
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On the 7th of June 2017 Cyprus signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”). The MLI will implement tax treaty measures in order to reduce opportunities for tax avoidance by multinational companies.
Article 6 and 7 as the main impact on Cyprus Companies
The main impact on Cyprus companies will be Article 6 and 7 which relate to treaty abuse. As a result, Cyprus will implement in its double tax treaties principle purpose test (PPT) and a limitation of benefit clause (LoB). Consequently, it is essential that Cyprus companies owners examine the impact of these changes and ensure that they have sufficient substance in Cyprus. Failure to do so could lead to significant tax implications.
The treaty, based on the OECD model treaty, provides for the following maximum withholding tax rates on dividends, interest and royalty payments:
- Dividends: No withholding tax on dividends paid to a company that holds directly at least 10% of the capital of the dividend paying company.
Otherwise, the rate will be 5%. - Interest and royalties: No withholding tax on interest and royalties paid to a resident of the other contracting state.
Who does the tax treaty apply to?
For the purposes of the treaty, a collective investment vehicle will be considered a resident of a contracting state if, under the domestic law of that state, it is liable to tax therein by reason of its domicile, residence, place of management or any other criterion of a similar nature. Collective investment vehicle will be considered as liable to tax if it is subject to the tax laws of that contracting state irrespective if it is exempt from tax.
The treaty also includes provisions for the exchange of financial and other information. The treaty will enter into force after formal ratification and with respect to taxes will have effect on or after 1 January following the date the treaty enters into force.
