Cyprus taxes have always been very low. For example, the corporate tax rate is only 12.5% and there is no Inheritance or wealth tax. Even so, the Government of Cyprus announced additional significant tax cuts and the introduction of the status of a Non-Domicile Tax Resident.
Non-Domicile Tax Residents are exempt from taxation
Until July 16, 2015, all tax residents of Cyprus paid a special tax on income received both in Cyprus and other jurisdictions. Those were the tax on dividends (17%), on bank deposit interest (30%) and on rental income (3%).
Who can be considered a Cyprus tax resident?
Cyprus tax residency is determined by the number of days each person spends in Cyprus. Any person who is in Cyprus for 60 days or more in a calendar year is considered a Cyprus tax resident.
Currently, the status of a "non-domiciled tax resident" has been introduced. A tax resident of Cyprus (whether a foreigner or a Cypriot citizen) who has this status is exempt from all the taxes mentioned above.
Who is considered a non-domiciled resident in Cyprus (for individuals with a domicile of origin other than Cyprus)?
Any individual who has not been a Cyprus tax resident for at least 17 out of 20 consecutive years is considered a non-domiciled tax resident.
This innovation will be particularly of interest for investors obtaining Cyprus citizenship. As before, they have no obligation to pay taxes in Cyprus, unless they become tax residents of Cyprus - they pay taxes in their countries. Now they can move to Cyprus, become tax residents of the country and do not pay the above taxes.
Currently, the government of Cyprus has introduced the following tax benefits:
- VAT When new property is purchased, a reduced VAT rate amounting to 5% will be charged instead of the full rate of 19% (applies to the first 200 m2).
- The lowest profit rate in the EU amounting to 12.5%.
- Up to 50% of income is not taxed (the rule applies to all newcomers with an annual salary from €100,000).
Property and applicant requirements for obtaining the reduced VAT rate
Reduced VAT rate is granted when the following requirements are fulfilled:
- Only applies to individuals (not companies)
- The applicant (property buyer) must be at least 18 years of age
- The purchased property must be the applicant’s main place of residence in the Republic of Cyprus. Property in this context means a house or an apartment including the situation when the buyer is having a house built.
- The applicant must not have other property purchased previously in Cyprus at the reduced VAT rate
- The property must be used exclusively as residence, and the applicant must be the first to enter into the actual ownership of this property upon the completion of construction.
The law applies to property, the area of which does not exceed 200 m2. If the total area is larger, the reduced VAT rate is not applied.
List of documents to be submitted for obtaining the reduced VAT rate
An applicant applying for the reduced VAT rate submits the following documents to the VAT Department of the Ministry of Finance of the Republic of Cyprus:
1. An application together with a declaration stating that he/she has purchased no other property in Cyprus using the reduced VAT rate;
2. The following documents shall be attached to the application:
- Contract of sale for the property
- Architectural plans for the property
- Marriage certificate if the applicant is married
- Copy of the passport
- Copy of spouse’s passport if the applicant is married
- Certified copy of the planning permit for construction
- Declaration certifying the appropriate size of the immovable property endorsed by an architect or a civil engineer
- Documentary evidence that the applicant uses the property as his/her place of residence in Cyprus such as:
- copies of phone bills
- copies of water bills
- copies of electricity bills
- copies of local and municipal tax bills
- Any other documents certifying that this property is used by the applicant for its intended purpose as the main place of residence in Cyprus.
The above listed documents shall be submitted within six months from taking possession by the applicant and form a part of the Application for using the reduced VAT rate.
3. In cases where the applicant is married, the spouse must also file an application with a declaration that he/she does not have real estate in Cyprus;
4. If the applicant, for whom the authorities have approved the reduced VAT rate, refuses to use the property earlier than in 10 years from the date of entry into the ownership, he is obliged to notify the VAT department of the Ministry of Finance within 30 days and proportionately pay the difference between the reduced and the standard VAT rate effective at the time of the conclusion of the contract.
VAT Refund Procedure
The applicant initially pays VAT at the standard rate, effective at the time of contract conclusion, as specified in the contract for the purchase of real estate. From January 1, 2014, the tax rate is 19%.
Further, the applicant applying for the reduced VAT rate (refund) signs the declaration and submits an application to the relevant state department, as described above.
After the VAT Department confirms the legality of granting the privilege to the applicant, VAT is recalculated at the reduced rate of 5%.