1. the definition of tax and the residency for companies incorporated in Cyprus,
2. the introduction of withholding taxes on payments of royalties, dividends, and interest to a company tax resident in a country included on the EU blacklist or to a company incorporate dinany of the EU back listed countries which is not considered tax resident anywhere.

Both laws are coming into force on December 31^st, 2022.

Until today, a company was considered as tax resident of Cyprus if its management and control is exercised in Cyprus. After this amendment, any company incorporated or registered in Cyprus whose management and control is exercised outside Cyprus will still be considered as tax resident of Cyprus, unless this company is considered as tax resident in any other state. As a result, a Cyprus-incorporated company can no longer be considered not to be tax resident anywhere. Unless a company is tax resident in a country included in the EU black list or if the company is incorporated in a country not included on the list, it is not tax resident in any jurisdiction

Royalties

The 10% withholding tax will apply to royalty payments made to a company that does not have a residence in Cyprus but which has a residence in a country that is included in the EU blacklist of non-cooperative jurisdictions, or to a company incorporated in such a backlisted country which is not tax resident anywhere, regardless of whether the assets for which the royalty is paid will be used in Cyprus or elsewhere.

Dividends

Dividends paid by Cypriot tax resident companies to companies tax resident in countries included in the EU black list of non-cooperative jurisdictions or to companies incorporated in such countries which are not tax residents anywhere will be subject to a 17% special defense contribution (“SDC”).

The above does not apply to companies listed on a recognized stock exchange.

Interests

The SDC rate on interest paid to a company that is not tax resident of Cyprus but tax resident in a country that is listed on the EU blacklist of non-cooperative jurisdictions, or to a company incorporated in one of those countries that is not considered tax resident anywhere, will be 30%.

The above does not apply to interest paid on securities listed on a recognized stock exchange.

Black listed countries

The list is adopted by EU on the 5^th of October 2021 and consists of the below countries

American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu.

The post Cyprus: Amendments on Income Tax Law & SDC Law appeared first on Chambersfield Economides Kranos.

Becoming a tax resident in Cyprus is an attractive option for High Net worth Individuals because of the benefits being numerous, quite appealing, and not easy to disregard.

The Cyprus tax residency status can be also very appealing to individuals that are frequently travelling around the world and are not actual residents with a permanent residency status in any country, known as Fiscal Nomads and Perpetual Travelers.

Chambersfield Economides Kranos has an extensive experience on tax law issues. Our Law Firm can provide you, inter alia, with professional legal assistance and support with every aspect and/or issue concerning the complex area of tax and practice.

Personal Income Tax

Pursuant to Cyprus Tax Regime, individuals who are Cyprus tax residents, are taxed on worldwide income, whereas individuals who are not considered to be Cyprus tax residents, are taxed on income accrued, or, derived solely from Cyprus.

Tax Residency – 183 Days Rule

As per the relevant regulatory and legislative framework, an individual can be deemed as a tax resident of the Republic of Cyprus, in case he/ she has physical presence exceeding 183 days in the current calendar tax year. The CY tax year period is identical to a calendar year, covering the 12-months’ period that commences on 1^st of January and ends on 31^st of December, of each year.

Tax Residency – 60 Days Rule

According to the latest amendment of the Law, an individual who does not retain physical presence in Cyprus exceeding 183 days, may still be deemed as tax-resident, provided that the following conditions are met:

1. The individual does not stay, in aggregate, more than 183 days in any other country and is not a tax resident of any other jurisdiction
2. The individual stays at least 60 days, during the current calendar tax year, in the Republic of Cyprus;
3. The individual maintains a permanent home in the Republic of Cyprus (either by owning or renting);
4. The individual operates a business and/or is employed and/or holds an office, in the Republic Cyprus, at any time during the tax year. It is important to note that in case the employment/business, or, holding of an office is terminated during the ongoing calendar tax year, then the individual would cease to be considered a tax resident of the Republic of Cyprus.

Calculation of Residency days in Cyprus for ‘183-day rule’ or the ’60-day rule’

• Day of Departure from Cyprus considers as non-residence day
• Day of Arrival to Cyprus considers as a residency day
• Same day arrival and departure to/from Cyprus considers as a residency day
• Same day departure and arrival from/to Cyprus considers as a non-residence day

Domicile – Non- Domicile Tax Residents

A CY tax resident individual may be considered either as domiciled or non-domiciled (non-dom) in Cyprus. More precisely, pursuant to the provisions of Wills & Successions Law, domicile is defined as follows:

• Domicile of Origin
• Domicile of Choice

A CY tax resident individual will be treated as non-domiciled in Cyprus, provided that either one of the following two case scenarios applies:

1. An individual who has obtained and maintained a domicile of choice outside Cyprus, provided that this person was not a Cyprus tax resident for any period of at least 20 consecutive years preceding the tax year in question; or
2. An individual who has not been a tax resident of Cyprus as per the Income Tax Law for a period of 20 consecutive years prior to the introduction of the law (i.e. prior to 16 July 2015).

Cyprus Tax Regime offers a plethora of advantages to individuals who are tax residents in the Republic of Cyprus, with relatively low scale income tax rates compare to other EU jurisdictions.

Income Tax Rates

The current income tax rates for Cyprus tax resident individuals are as follows:

Income Tax Benefits

The following income is exempted from income tax, as follows:

Special Defense Tax

According to Special Contribution for the Defense of the Republic of Cyprus Law of 2002, tax is imposed, inter alia, on income derived from interest, rents and dividends, subject to certain exemptions.

Special Defense Tax Benefits for Tax Resident Individuals Domiciled in Cyprus

Tax residents domiciled in Cyprus are subject to special defense tax at the rate of 17% on dividends income and 30% on interest income, regardless of the income source. Furthermore, rental income is also subject to special defense tax at the rate of 3% on 75% on the gross amount.

Special Defense Tax Benefits for Tax Resident Individuals Non – Domiciled in Cyprus

Pursuant to the recent ‘non-dom’ rules, CY tax resident individuals who are considered to be non-domiciled in Cyprus, are exempted from payment of the special defense tax on dividends, interest and rental income.

The Cyprus non-domiciled tax status provides fundamental tax advantages, whereas non-domiciliaries benefit from zero rate of tax, on the following sources of income: dividends, interests, rent, capital gains (other than the ones imposed on immovable property in Cyprus), capital sums received from a pension, provident, medical schemes, or, insurance fund.

In summary, if you are looking to become a Cyprus Tax Resident or expand your business operations in Cyprus due to the island’s favorable straightforward tax regimes,  Chambersfield Economides Kranos has the unquestionable expertise and in-depth knowledge to assist, represent and advise you in all aspects of Cyprus tax regime, while achieving the maximum beneficial outcome for you.

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