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Relocating and retiring in Cyprus

Contributed by Oxford Tax Solutions
05 July, 2021


Cyprus is considered by many, one of the best places that one can retire. Cyprus low cost of living, high quality of life and low criminal levels make it a safe destination to retire.

Cyprus has a number of blue flag beaches, a beautiful hot climate, high levels of hospitality and a rich history and culture. There are various historical sites to visit, charming traditional villages and delicious Mediterranean cuisine to taste.

Cyprus also hosts a large expatriate community and English is extremely widely spoken in the Island, making the transition to this new country easy. In addition, Cyprus also has high quality of medical care with various private clinics and is also an EU member state with all the advantages that come with this.

Cyprus Tax Resident

In order for an individual to qualify as a Cyprus Tax Resident then one of the below criteria must be met:

1. The 183 days rule

If an individual resides in Cyprus for more than 183 days during a tax year;

2. The 60 days rule

On 1 January 2017 the above rule was amended, in order for individuals who meet the below conditions, to also be considered as a Cyprus Tax Resident under the '60 day rule';

Conditions

  1. An individual does not spend more than 183 days, either continuously or in total, of that tax year in another country and is not a tax resident in another country for that year;
  2. An individual spends at least 60 days in Cyprus during that year;
  3. The individual carries out a business and/or is working in Cyprus, and/or holds an office with a Cyprus tax resident company any time during that year;
  4. The individual either owns or rents a permanent residence in Cyprus;

How foreign pension is taxed

A foreign pension can be taxed in Cyprus in two different ways. A foreign pension received in Cyprus can be taxed under the normal personal tax rates as seen below:

Chargeable Income (EUR)Tax Rates (%)
0 to 19,5000
19,501 to 28,00020
28,001 to 36,30025
36,301 to 60,00030
Over 60,00035

The second way that foreign pension can be taxed in Cyprus is at a flat rate of 5% for any amounts that exceed EUR 3,420 per annum.

In addition to the favourable tax rate, below is a list of few other tax advantages for a pensioner that decides to reside and relocate to Cyprus.

  • Cyprus has agreed and signed more than 65 different treaties that provide reduced withholding tax rates or even nil tax rates on dividends, interest, pensions and royalties that have been received from abroad;
  • No inheritance or gift taxes are payable in Cyprus making it easier for those retiring in Cyprus to leave wealth to their family in the future;
  • Cyprus tax grants exemptions on income tax for individuals for all of the below:
    • Lump sums received by way of retiring gratuity, commutation of pension or compensation for death or injuries;
    • Capital sums paid to individuals out life insurance policies, provident fund and pension funds;
    • Profit from the sale of securities is exempt from tax in Cyprus. Securities are defined as: Ordinary shares, founder shares, preference shares, options on shares, debentures, bonds, short position on titles to include futures, forwards, swaps and participation in companies. Such income will however be subject to General Health Care System (GHCS) at a rate of 2.65%;
  • An individual can become a Cyprus tax resident and obtain a Cyprus Tax Identification number (TIN) within a short period of time;
  • Tax credit relief can be offered if a particular income was already taxed abroad. This relief can be obtained only when the original tax payment receipt is presented as confirmation;
  • Non-domiciled tax resident individuals will be fully exempt from Social Defence Contribution (SDC). SDC is payable on dividend income, interest income and rental income. However, such income will be subject to GHCS contributions at a rate of 2.65%. Non-domiciled tax resident individuals are exempt from SDC on their dividend, interest and rental income while domiciled tax residents are subject to below SDC rates on their income:
    • 17% on dividends received in Cyprus or from abroad;
    • 30% on passive interest received in Cyprus or from abroad;
    • 3% on 75% of gross rental income;

Domicile can be obtained in two different ways:

  1. Domicile by Origin - domicile has been given at birth, normally on the father's side.
  2. Domicile by Choice -an individual has acquired domicile by forming a permanent residence and has the intention to reside in Cyprus permanently.

If an individual has been a Cyprus tax resident for at least 17 out of the last 20 years prior to the tax year under review, then irrespectively from the individual's origin, this individual will be taxed as a Cyprus domiciled individual for SDC purposes. SDC will be payable from the 18th year of individuals reside in Cyprus. Therefore any individual that is residing to Cyprus will be able to enjoy 17 years of exempt SDC tax.

Above we have stated a few of the major tax benefits and reasons to consider Cyprus as the ideal location to reside and retire. For more details and professional assistance on how this can be done and how this will benefit your individually, please contact our offices at solutions@oxfordcy.com .




 


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