Responding to Challenges
Contributed by Fiducenter
27 November, 2018
A World Full of Challenges...
Over the last few years the international business sector has experienced unprecedented changes, which have totally reshaped the landscape including...
▪ EU Fourth AML Directive
Concepts such as substance, transparency and compliance are having a prominent role in the new era of international investments and business operations.
Cyprus has chosen not only to fully adjust but also to lead the way to the modern international business world. To do that it is taking advantage of the plethora of its existing advantages, such as...
- its business-friendly legal and tax regimes
- its EU Membership
- the well-educated and experienced workforce
- its strategic geographical position
- the very high standard of living
Particular attention should be given to the EU membership, from a Brexit perspective. Cyprus, through its EU membership, offers certainty over access to the EU single market. It can form a secure solution to the most pressing Brexit concerns for UK-based businesses, including access to the EU freedoms, the euro, unrestricted access to the EU Directives, etc.
How does Cyprus Respond?
Cyprus has introduced over the last few years, some very important measures, which have assisted in making it even more attractive. Some of these incentives are briefly presented below.
The concept of ‘domiciled’ persons for what concerns Special Contribution for Defense was introduced as from July 2015. It aims in attracting and encouraging foreign professionals and entrepreneurs to relocate their business activities and to set-up the necessary infrastructure in Cyprus. Individuals who are tax residents of Cyprus but are not considered to be "domiciled" in Cyprus are exempt from payment of Special Contribution for Defense on dividends, interest and rental income.
It is important to note that the exemption from payment of Special Contribution for Defense also applies to income earned in Cyprus.
This is a remarkable tax benefit, especially considering that the standard Special Contribution for Defence on interest is 30%, on dividends 17% and on rental income 3%.
60-days tax residency rule
This provision, which was introduced in July 2017, provides an incentive to individuals who are not tax residents in any other state for any tax year to transfer their tax residence to Cyprus, as long as they satisfy the following requirements:
- the individual should not remain in any other state for one or more periods which in total exceed 183 days in the same tax year; and
- the individual should not tax be a resident in any other state for the same tax year; and
- he/she should remain in Cyprus or at least 60 days during the tax year; and
- he/she should pursue a business in Cyprus and/or work in Cyprus and/or be a director in a Cyprus tax resident company at any time during the tax year; and
- the individual should maintain a permanent residence in Cyprus, either owned or rented.
Tax exemptions on employment income of non-residents moving to Cyprus
- 50% tax exemption for 10 years, when employment income exceeds €100,000 OR
- Lower of 20% or €8,550 tax exemption on employment income for 5 years (until 2020)
The first measure was implemented to attract foreign companies or groups to establish themselves or, as is usually the case, transfer their base and substance of operations in Cyprus by offering 50% exemption on personal income. The exemption applies to employment income of a non-resident person taking up residence in Cyprus to work for an employer in the country. It applies for a period of ten years starting from the first year of employment provided that the employment income of the employee exceeds €100.000 per annum.
The second exemption, which has been in effect for many years, relates to the lower of 20% of employment income or €8,550 and applies for five years starting from the 1st of January of the year following the year of employment. It will stop applying after 2020.
Exemptions from taxes and other duties for investing in real estate
A reduced VAT rate of 5% (as compared with the standard VAT rate of 19%) applies on the construction or acquisition of residential property in Cyprus, which is to be used as the primary and permanent residence, even for people who do not ordinarily reside in Cyprus.
Furthermore, the Land Registry Law provides for full exemption from transfer fees for all transfers of real estate property for which VAT is payable on the transaction and 50% exemption from transfer fees for all other cases for which properties are sold for the first time upon the issue of a title. This exemption is valid for all contracts signed after 2 December 2011.
Another significant incentive introduced as from the beginning of 2017 concerns the abolition of the Immovable Property Tax, a measure which can lead to significant tax savings depending on value of immovable property owned.
A tax deductible charge on equity
This involves a tax rebate on the basis of a notional interest calculated on fresh capital invested in a Cyprus company irrespective of the nature of its activities. The notional interest is deducted from the taxable income of the company. The measure aims to provide a tax-attractive alternative to debt financing – safeguards "beneficial ownership".
Top class citizenship and residency schemes
Cyprus offers two schemes for attracting investment by third-country nationals which, since their implementation, have created increased interest especially from investors who see Cyprus as the gateway (being the far eastern border of the EU) to the great freedoms granted by the EU to its Member States and their citizens, especially the freedom to conduct business in the Union.
This scheme involves the provision of citizenship to individuals upon meeting certain criteria, either personally, or through participation as a shareholder or senior executive in company/companies. These criteria are outlined below.
1. Investment in immovable property
A permanent privately-owned residence in Cyprus of a minimum market value of €500.000 (excluding VAT);
2. Direct investment of at least €2.0 million
- Investment in real estate, land development and infrastructure projects
- Investment in Cyprus companies employing at least 5 people
- Investment in Alternative Investment Funds investing in Cyprus or financial assets of Cyprus entities
- Combination of all of the above plus an option to purchase special government bonds up to €500,000;
3. Other requirements
- Clean criminal record
- Permanent privately-owned residency permit
Permanent Residence Scheme
This special class of permit relieves its holders from time consuming procedures associated with other types of permits, such as consular inspections, renewal etc. The Ministry of Interior implements a "fast-track" procedure in order to issue the relevant permit, assuming the following requirements, set by the scheme, are satisfied.
1. Investment in immovable property
Up to two properties in Cyprus with a total value of not less than €300.000 (excluding VAT and transfer fees).
2. Other requirements
- Clean criminal record
- Annual income of at least €30.000
- Deposit in a Cypriot bank not less than €30.000 for at least 3 years
- Confirmation not to be employed or self-employed in Cyprus
- Visiting Cyprus at least once every two years
Turning challenge in to opportunity and...a lifestyle of choice!
In essence, Cyprus offers a plethora of reasons why foreign investors and businessmen should not only invest in the country or simply add it on the diagram of their international business structures, but also to relocate to the island and transfer their business activities there. By doing so, not only will they be in line with the new status quo but they will also meet other important objectives, such as good returns on investments, ease and cost-efficiency in doing business and having the lifestyle of their choice.
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