Cyprus’ strategic geographical location, warm climate, and favourable tax regime make it an ideal destination for business and investment. The country has been a member of the European Union since 2004 and of the Eurozone since 2008.

Its tax system is modern, transparent, and fully aligned with EU and international standards, offering significant advantages to individuals who become tax residents.

Tax Residency Rules

An individual is considered a Cyprus tax resident if they meet one of the following criteria:

  • 183-Day Rule: The individual resides in Cyprus for more than 183 days in a tax year.
  • 60-Day Rule (effective from 1 January 2017): The individual may be considered a Cyprus tax resident if all of the following conditions are met:
    1. Does not reside in any other country for more than 183 days and is not a tax resident of another country;
    2. Resides in Cyprus for at least 60 days;
    3. Carries out business, is employed, or holds an office in a Cyprus tax resident company;
    4. Maintains a permanent residence in Cyprus (owned or rented).

Day-counting rules:

  • Day of departure: counted as a day outside Cyprus.
  • Day of arrival: counted as a day in Cyprus.
  • Same-day arrival and departure: counted as a day in Cyprus.
  • Same-day departure and arrival: counted as a day outside Cyprus.

Non-Domicile Concept

On 16 July 2015, Cyprus introduced the concept of “domicile” through an amendment to the Special Defence Contribution (SDC) Law.

Definition of Domicile:

  • Domicile of Origin: Acquired at birth, usually from the father.
  • Domicile of Choice: Acquired through establishing a permanent home in Cyprus with the intent to reside indefinitely.

Non-Domicile Criteria:

  • The individual has not been a Cyprus tax resident for at least 20 consecutive years prior to the tax year under assessment.
  • SDC is imposed on an individual once they have been a Cyprus tax resident for at least 17 out of the previous 20 years.

Tax Treatment

  • Domiciled tax residents: Subject to SDC on dividends, interest, and rental income.
  • Non-domiciled tax residents: Fully exempt from SDC on the above income types.

Current SDC rates (as of July 2024 amendment):

  • Dividends: 17%
  • Interest income: Reduced from 30% to 17%
  • Rental income: 3% on 75% of gross rental income

Benefits for Non-Domiciled Tax Residents

  • Exemption from SDC on dividend and interest income.
  • Dividend and interest income are also exempt under Income Tax Law.
  • Deemed dividend distribution rules do not apply.
  • Exemptions available on employment income (see below).

Employment Income Tax Exemptions

 

  1. The 50% Exemption Rule (New Article 8(23A) – Effective from 1 January 2022)

Eligible individuals can claim a 50% exemption from income tax on employment income for up to 17 years.

Criteria:

  • Annual salary must exceed €55,000.
  • The individual must not have been a Cyprus tax resident for at least 15 consecutive years prior to employment.
  • Applies to first-time employment in Cyprus (short-term employment <120 days/year does not disqualify).
  • If salary falls below €55,000 in the first or second year, the exemption may still apply retroactively if the average over both years exceeds €55,000.
  • Individuals can change employers without losing the exemption as long as the other conditions continue to be met.

 

Transitional Provisions (for employment started before 26 July 2022):

  • Individuals earning over €100,000/year who began employment between 1 January 2016 and 26 July 2022 can apply the old 10-year exemption, if:
    • They were not Cyprus tax residents for 10 consecutive years prior to employment;
    • They were not Cyprus tax residents for 3 out of the last 5 years before employment began.
  1. The 20% Exemption Rule (New Article 8(21A) – Effective from 26 July 2022)

 

A 20% exemption from income tax applies to individuals starting their first employment in Cyprus after 26 July 2022, up to a maximum of €8,550 per annum, for 7 consecutive tax years.

Criteria:

  • Must not have been a Cyprus tax resident for 3 consecutive years before employment.
  • No prior salaried work in Cyprus (except for <120 days per year).
  • No minimum salary required.
  • Exemption begins in the year following the start of employment.
  • Cannot be combined with other income tax exemptions (Articles 8(21), 8(23), 8(23A)).

Special Pension Regime

  • Foreign pensions may be taxed under a special regime:
    • Exempt up to €3,420/year
    • Excess taxed at a flat rate of 5%