How to obtain Cyprus tax residency?

Cyprus, with its favorable climate and developed economy, attracts the attention of both potential residents and businessmen. Obtaining tax residency on this island can be a key step in optimizing your tax obligations. Let’s look at the main aspects of this process.

Tax residency and its difference from citizenship

Before diving deeper into the topic of Cyprus tax residence, it is important to clarify the basic terms.

Tax residency is a status acquired by a person residing in a country for a certain period of time. This status determines the obligations to pay taxes in accordance with the laws of the resident country. Thus, tax residence is important specifically for tax purposes, since it determines in which country an individual or legal entity must pay taxes on its income.

A person who obtains Cyprus tax residence can be a citizen of any other country. That is, the difference between tax residency and citizenship is that citizenship provides a wide range of rights, including the right to participate in elections and the powers of a citizen in general, while tax residency focuses solely on tax obligations.

In the context of this topic, such a concept as “domicile” also appears. Domicile is a broader concept than tax residence. This term refers to the place of “permanent residence” or “home” of an individual. In Cyprus, domicile can be defined as the place where a person resides with the intention of remaining/residing there permanently.

Registration of Cyprus tax residence for individuals

In Cyprus, there are several main ways for individuals wishing to acquire tax residency:

1) Actual residence or “183-day’s rule”

An individual is considered a de facto resident of Cyprus if he/she is on the island for at least 183 days in a calendar year. When applying, the following factors are considered:

• Center of vital interests;
• Family connections (where the family lives/whether there is a marriage with a Cypriot).
• Description of economic plans for further stay in Cyprus.

2) Declared residence or “60-day’s rule”

An individual can claim declared tax residence in Cyprus even if he is not on the island for more than 183 days a year. To do this, he/she must have strong ties with Cyprus, live on the island for at least 60 days a year and meet the following criteria:

• an individual must not spend more than 183 days in the current reporting period (calendar year) in any other state;
• availability of rented or own property in Cyprus as proof of place of residence;
• the presence of close economic ties during the current tax period: the presence of a local business or employment in Cyprus;
• absence of tax resident status in any other state for the current reporting period.

It is important that all of the listed criteria are met, otherwise residency will be denied. Moreover, even if such status has been obtained, it can be canceled for failure to comply with residence requirements.

3) Domicile in Cyprus

Domicile in Cyprus is determined based on factors such as place of birth, place of residence, place of business, location of assets, etc. To obtain domicile in Cyprus, an individual must have been born or resided in Cyprus for 17 out of the last 20 years.

Thus, those who permanently reside in the country are awarded Domicile status (domiciled tax resident status), and non-permanent residents, according to the “rules 183 or 60 days,” are awarded Non-Domicile status (non-domiciled tax resident status). An important difference between these statuses is that domiciled residents are taxed on all their worldwide income, regardless of where it was earned, while non-domiciled residents are taxed only on their income earned in Cyprus.

Advantages of Cyprus tax residence

Many entrepreneurs want to apply for tax residency in Cyprus, because it has a number of advantages, including:

• Low tax rates

Cyprus has a progressive tax system with a maximum rate of 35%. However, the first 19 500 euros of taxable income are exempt from taxation. Over – from 20% to 35%.

• Preferential taxation of foreign income

Under Cyprus law, individuals who are tax residents of Cyprus may benefit from tax relief on their foreign income. This requires that foreign income be derived from sources other than Cyprus.

• Benefits for new employees

Cyprus provides tax benefits to new employees whose first job on the island began after 1 January 2022. Such employees can be exempt from income tax on 50% of their income for 17 years if their annual salary exceeds EUR 55 000 and they have not been a resident of Cyprus for 12 consecutive years before starting employment in the country.

• Possibility of obtaining Cypriot citizenship

Individuals who have been tax residents of Cyprus for 7 years can obtain Cypriot citizenship through the naturalization program. In addition, tax residency in Cyprus gives you the right to legally reside and conduct business on the island.

• Double tax treaties

Cyprus has many double tax treaties with various countries to avoid double taxation.

• Lack of currency exchange controls.

There are no exchange controls in Cyprus, allowing you to transfer money between Cyprus and other countries freely.

Recommendations for obtaining Cyprus tax residence

If you meet any of the tax residency criteria, you can apply directly for Cyprus residency to the Cyprus Tax Authority. The following documents must be attached to the application:

• Application for Cyprus tax residency.
• Documents confirming your stay in Cyprus for 183 days or more than 60 days in a calendar year (copy of passport with stamps, tickets, etc.).
• Documents confirming the existence of ties with Cyprus (business, work, assets, family, etc.).
• Confirmation of payment of the state fee.
• Documents confirming that you are not a tax resident of another country for the calendar year.

We would like to draw your attention to a very important point. If a citizen of Ukraine plans to move to Cyprus and register tax residency there, he first needs to notify the Ukrainian tax office about the termination of his tax resident status in Ukraine and draw up the relevant documents, which he then submits in Cyprus.

After submitting all documents and reviewing the application, the Cyprus Tax Service will make a decision on granting tax residency. In case of a positive decision, a Cyprus tax residence certificate will be issued, which is the main supporting document.

The period for processing an application and obtaining Cyprus tax residency is usually up to 12 months.

It is important to note that obtaining Cyprus tax residency does not automatically entitle you to Cyprus citizenship. To obtain Cypriot citizenship you must reside in Cyprus for 7 years.

Considering the above aspects, obtaining Cyprus tax residency can be a strategic move for those seeking to optimize their tax obligations and take advantage of the benefits of this beautiful island. It is important to remember that each relocation situation is unique and it is recommended to obtain individual tax advice and support from lawyers to ensure the successful obtaining of tax residency in Cyprus.