LIVING AND WORKING IN CYPRUS
It is not difficult to appreciate why so many people fall in love with Cyprus and consider making it their home. There are, however, some tax and financial essentials you need to be aware of and plan for if you are to get the best out of living in Cyprus.
Most of us would want to make sure we do not miss out on tax planning, pension and wealth management opportunities that could protect our wealth and improve our retirement years.
Residency for tax purposes
The starting point when living abroad is to understand how you become resident for tax purposes. You are tax resident in Cyprus if you cumulatively spend more than 183 days physically present here during a calendar year. Generally, a day of arrival counts as a day of residence and a day of departure as a day of non-residence.
Remuneration from any office or employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of his employment, for a period of 5 years for employments commencing as from 1 January 2012 if the annual remuneration exceeds €100.000 is entitled to a 50% exemption from income tax.
Cyprus takes a split-year approach. If you have not done your six months in the year of arrival, then you will be tax resident from 1st of January of the following year (assuming you stay for more than 183 days).
Expatriates living in Cyprus need a thorough understanding of the Cyprus tax system and how it applies to you. As a resident of Cyprus, you are taxable on your worldwide income (including all pension income) and gains on Cyprus real estate. Certain income, such as bank interest and dividends, is exempt from income tax, but is taxable in the form of ‘defence contributions’. Rental income is subject to both income tax and defence contributions.
There is no capital gains tax on the sale of shares, but defence contribution on bank interest applies at different rates as you can find out in our TAX FACTS flyer.
With specialist advice from one of our tax partners, you may be able to restructure your savings to avoid paying tax on investment income.
If you are retired or approaching retirement, Cyprus is a very attractive place to live from tax point of view.
Pension income arising from an overseas source can be taxed in one of two ways at the taxpayer’s option:-
At a flat rate of 5% on the excess of €3,420 (this sum being exempt), or using the normal income tax rates.
You can choose the method that works best for you each year
There is more good tax news for Cyprus – there is no inheritance tax.
Seek specialist advice on how to avoid or mitigate this tax.
Another tax issue to consider when moving to Cyprus is the implications of buying and selling property. When is the best time to sell your property? When is the best time to buy in Cyprus? You could end up paying tax that could have been avoided, so look into this before making any purchases or sales.
Pensions are another key issue. The Cyprus tax regime can provide opportunities for residents. This is a specialist area, you need professional advice. If you have not yet started drawing your pension, seek advice before you do.
Last but certainly not least, you need to review your savings and investments. A key rule of any investment strategy is that it should be specifically designed around your circumstances, objectives and risk tolerance. Your circumstances change drastically with a move to a new country and retirement, so your strategy needs to be professionally reviewed to establish how it should be adjusted to suit your new life and goals.
The sooner you carry out your tax and wealth management planning, the sooner you can get on with enjoying your new life in Cyprus.
Find out details about Cyprus Tax by downloading our annual publication Tax Facts 2015.
Important note: This article has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice from a qualified accountant.