Tax residency in Cyprus: how to avoid paying extra taxes

Tax residency in Cyprus: how to avoid paying extra taxes

Tax residency is the status of an individual or a legal entity that determines in which country they have to pay taxes. In the case of Cyprus, there are two main ways to determine tax residency:

  • The 183 days rule
  • The 60 days rule

The 183 days rule

According to this rule, an individual is considered a tax resident of Cyprus if they spend more than 183 days on the island in a calendar year. The arrival and departure days are counted as follows:

  • The day of departure from Cyprus is considered a day of residence outside the island.
  • The day of arrival in Cyprus is considered a day of residence in the Republic.
  • Arrival and departure on the same day are counted as a day of residence in Cyprus.
  • Departure and arrival in Cyprus on the same day are counted as a day of residence outside the country.

The 60 days rule

This rule is more beneficial for foreign citizens who wish to obtain tax residency in Cyprus. According to this rule, an individual is considered a tax resident of Cyprus if they meet the following conditions:

  • Does not reside in any other country for a total of more than 183 days.
  • Is not a tax resident of another country.
  • Resides in Cyprus for at least 60 days.
  • Has strong ties to Cyprus (conducts business on the island and/or is employed or holds a director position in a Cyprus tax resident company, provided that the aforementioned activity does not cease before the end of the tax year).
  • Owns property in Cyprus or rents it.

For the purposes of the “60 days rule”, arrival and departure days are counted in the same way as in the “183 days rule”.

Which rule to choose?

The choice of one rule or another depends on specific circumstances. If you plan to reside in Cyprus for more than 183 days a year, then you will need to follow the “183 days rule”. In this case, you will be obligated to pay taxes on all your income earned both in Cyprus and abroad.

If you plan to reside in Cyprus for less than 183 days a year, then the “60 days rule” may be suitable for you. In this case, you will only be obligated to pay taxes on income earned in Cyprus.

What advantages does Cyprus tax residency provide?

Cyprus tax residency provides several advantages, including:

  • Low tax rates. Cyprus operates a progressive tax system, with a maximum rate of 35%. The capital gains tax rate is 17%.
  • Avoidance of double taxation. Cyprus has signed double taxation avoidance agreements with many countries worldwide.
  • Freedom of movement. There are no restrictions on leaving the country for tax residents in Cyprus.

How to obtain Cyprus tax residency?

To obtain Cyprus tax residency, you need to submit an application to the Tax Department of the Republic of Cyprus. The application should be accompanied by the following documents:

  • Completed application form.
  • Birth certificate or passport.
  • Documents confirming residence in Cyprus (e.g., lease agreement, utility bills, etc.).
  • Documents confirming strong ties to Cyprus (e.g., documents confirming business activity, employment, director position).

The application process takes one to three months.

Conclusion

Cyprus tax residency can be beneficial for foreign citizens who wish to reduce their tax burden. To obtain Cyprus tax residency, you need to meet certain conditions and submit an application to the Tax Department of the Republic of Cyprus.

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