Basis of Taxation – Individuals

Basis of Taxation – Individuals

All Cyprus tax resident individuals are taxed on all chargeable income accrued or derived from all sources in Cyprus and abroad. Individuals who are not tax residents of Cyprus are taxed on certain income accrued or derived from sources in Cyprus.

An individual is tax resident in Cyprus if (s)he spends in Cyprus more than 183 days in any one calendar year.

With effect as from 1 January 2017, an individual may also be considered tax resident in Cyprus if (s)he satisfies the “60 days rule”. The “60 days rule” applies to individuals who in the relevant tax year:

• do not reside in any other single state for a period exceeding 183 days in aggregate, and
• are not considered tax resident by any other state, and
• reside in Cyprus for at least 60 days, and
• have other defined Cyprus ties. To satisfy this condition the individual must carry out any business in Cyprus and/or be employed in Cyprus and/or hold an office (director) of a company tax resident in Cyprus at any time in the tax year, provided that such is not terminated during the tax year. Further, the individual must maintain in the tax year a permanent residential property in Cyprus which is either owned or rented by him/her.

For the purposes of both the “183 days rule” and the “60 days rule”, days in and out of Cyprus are calculated as follows:

• the day of departure from Cyprus counts as a day of residence outside Cyprus
• the day of arrival in Cyprus counts as a day of residence in Cyprus
• arrival and departure from Cyprus in the same day counts as one day of residence in Cyprus
• departure and arrival in Cyprus in the same day counts as one day of residence outside Cyprus

Non-Domicile rules for individuals

According to the provisions of the Cyprus Tax Laws, an individual who is a Cyprus tax resident under the provisions of the Income Tax Law (either under the 183 days rule or the 60 days rule) but is “non-domiciled” in the Republic of Cyprus, will be exempt from Special Defence Contributions (SDC).

As per the SDC law, dividends and interest income earned by individuals who are tax residents and domiciled in Cyprus, are subject to tax at the rate of 17% and 30% respectively, regardless of the source of the income (i.e. from Cyprus or from abroad). Rental income is also subject to tax at the rate of 3% on 75% of the gross amount. Therefore, tax residents but non-domiciled individuals will enjoy dividend, interest and rental income free from SDC tax in Cyprus.

The new provisions define domicile in accordance with the rules of the Wills and Succession Law:

• A domicile of origin, i.e. the domicile received by an individual at birth; and
• A domicile of choice, i.e. the domicile acquired by an individual by establishing a home with the intention of a permanent or indefinite stay.

A person who has a domicile of origin in Cyprus will be treated as “domiciled in Cyprus” for SCD purposes with the exception of:

• An individual who has obtained and maintained a domicile of choice outside Cyprus under the provisions of the Wills and Succession Law, provided that this individual was not a Cyprus tax resident for a period of at least 20 consecutive years prior to the tax year in questions; or
• An individual who was not a Cyprus tax resident for a period of at least 20 consecutive years immediately prior to the entry into force of the introduced provisions, i.e. prior to 16/07/2015.

Irrespective of his/her domicile of origin, an individual who remains a tax resident of Cyprus for a period of at least 17 years out of the last 20 years prior to the tax year in question, shall be deemed as domiciled in Cyprus for SDC purposes.