Cyprus tax residency is quite popular with digital nomads. The reason is obvious: it has flexible rules regarding residency and comes with tax benefits. Therefore, I decided to devote an article to the topic.
Key Takeaways on Cyprus Tax Residency for Digital Nomads and Expats
- Domicile is an important concept for taxes in Cyprus. As a nomad you’ll benefit from not having your domicile in Cyprus.
- Become a tax resident by only spending 60 days per year there (specific conditions apply).
- Income up to €19.500 is exempted from personal income tax.
- Set up a company to benefit the low corporate tax rate of 12,5%.
Tax Rules in Cyprus
We need to start to discuss the concept of domicile in Cyprus. Basically, domicile refers to where you have been a long term (tax) resident. Irrespective of if you are a tax resident for the short term in the country.
Most nomads won’t have domicile of origin in Cyprus as this is linked to being born there. However, you will have your domicile in Cyprus if you have been a tax resident of Cyprus for 17 out of the last 20 years.
This is a very long time frame so you won’t need to worry about this immediately if you get Cyprus tax residency.
The concept of domicile is important for tax reasons. Once you obtain domicile in Cyprus, you will pay more taxes / contributions. We’ll give some examples later on.
Which Taxes Would you Pay in Cyprus?
Do you plan to spend time in Cyprus or want to set up Cyprus tax residency? The, you should be aware of the possible tax consequences that come with it.
Personal Income Tax
Income tax rates in Cyprus start at 20% as from an income of €19.500 and go up to 35% if you earn more than €60.000.
Dividends are exempted from income tax. However, a special kind of tax – called Special Defense Contribution – is applied to it at a rate of 17%.
Nevertheless, this rate only applies if you are both a tax resident and domiciled in Cyprus.
Most nomads, however, will not qualify as domiciled in Cyprus due to which the tax isn’t applicable. Practically, this means that the dividends you’ll receive are free from income tax. Still, if you are a tax resident of Cyprus, you will have to pay social contributions on the dividend. The rate is 2,65%.
Also capital gains, except for those on real estate in Cyprus, are exempt from taxes.
Social contributions
Social contributions of self-employed individuals are currently 15,60%. However, they increase each five years until they reach the amount of 20,40% as from 2039.
Nevertheless, there are some maximum contributions that could apply depending on your profession.
In addition to the general social contributions there is also a contribution due to the General Health System which amounts to 4% for self employed individuals.
If you employ yourself as a director of your Cypriot company, your total social security contributions amount to 26%. Of this 12% is paid by the company on top of your wage and 14% comes out of your wage.
Is a Tax Residency in Cyprus a Smart Choice for Reducing Taxes as a Digital Nomad?
As I mentioned before, you can already become a tax resident in Cyprus by only spending there 60 days per year and obliging to some other criteria.
The fact that you only need to spend 60 days in the country is a major benefit to digital nomads. Yet, you still need to make sure you can commit to going there two months every year. It should not be an issue matching the other criteria.
You can create the necessary link with Cyprus by incorporating your company there. We’ll dive deeper into this now.
Why Opening a Company in Cyprus is a Valid Strategy for Reducing Taxes
In order to organize your business under a legal entity you can set up a company in Cyprus. This will also help you with creating ties to Cyprus in order to qualify as a tax resident while only spending 60 days in the country.
Company profits are subject to a flat tax rate of 12,5%. A fairly decent tax rate. If you add the social contributions to this you end up with a total tax cost of around 15%.
Please note that if you set up a company in Cyprus, you need to pay yourself a minimum wage of €12.000 per year. On this amount, you’ll pay social contributions (see above).
Given that there is a tax free threshold of €19.000 for personal income, you won’t pay any income taxes on this amount. You could even take out around €1.500 with surpassing the tax free threshold. Yet, this will mean paying more social contributions.
How to Become Tax Resident in Cyprus
183 Days
Cyprus will consider you a tax resident if you spend more than 183 days in the country during the calendar year (1). Irrespective if you have any further links to the country.
So, if you plan to spend more than six months in Cyprus, you should know you could be liable to taxes there.
In order to count your amount of days, the day of arrival in Cyprus counts while your day of departure doesn’t count.
60 Days
Another option to create tax residency in Cyprus for digital nomads is by just spending 60 days in the country while also having other ties to the country.
In order to have sufficient ties to Cyprus you will need to fulfill two criteria:
- Maintain a permanent home in Cyprus. You can own or rent the house.
- Carry out business in Cyprus or be an employee or director of a Cypriot company.
Furthermore, other criteria apply:
- Don’t spend more than 183 days in any other country.
- Don’t become a tax resident in another country.
Basically, the 60 day regime fits the lifestyle of digital nomads very much. It allows you to benefit from tax residency in Cyprus for digital nomads while you don’t need to spend too much time there.
Procedure
Once you know how much time you will spend in Cyprus, you still need to run through some administrative procedures to actually become a tax resident.
I can do this for you if you need help with these different steps.
Let Me Figure Out the Best Tax Strategy for You
Cyprus tax residency can definitely be a good choice as a digital nomad. However, whether or not this is the ideal solution for you depends on your personal and professional situation.
Therefore, it’s always good to have a proper understanding about the different options out there. I have helped over 100 nomads with advising them on the options available and implementing these. Many times, the ideal solution was one which they didn’t have heard from before…
Reach out if you want to find out what the ideal solution is for your situation!
