Offshore Resident: Cyprus

Residents of Cyprus have a reasonably favourable tax regime, especially if they are retired foreigners.

Residence is defined as presence in the country for more than 183 days in a calendar year (which is the tax year), and then applies to the whole year. Resident individuals are subject to tax on their world-wide income. Various deductions are permitted, including some in respect of share ownership; and the first EUR19,500 of personal income is exempt from tax.

Income from EUR19,50-28,000 is taxed at 20%; income from EUR28,001-36,300 at 25%; and income above EUR36,300 at 30%.

Foreign citizens, resident or otherwise, pay 5% on pension income received in Cyprus above EUR3,417 per annum. Aside from the Special Defence Contribution, interest, dividends, and profits from securities trading are exempt from taxation.

A 'Special Defence Contribution' applies to certain types of income as follows:

• 10% on: interest received by a legal entity unrelated to its normal business or by an individual with income over EUR11,960 pa.
• 15% on: dividends received by individuals in Cyprus.

Individuals exercising an office or employment in Cyprus, whose residence was outside Cyprus before the commencement of the employment, are granted a tax exemption for 20% of their remuneration, or EUR8,000, whichever is the lower, during a period of three years starting at the beginning of the year following the year of commencement of their employment.

There is no tax on wealth, no inheritance tax and no alternative minimum tax. There is a capital gains tax of 20% on disposal of real estate, and a real estate tax based on market value as of January 1, 1980 charged at the following ratio: from EUR170,860 and up to EUR427,150 - 2.5:1,000; from EUR427,150 and up to EUR854,301 - 3.5:1,000; and over EUR854,301 - 4:1,000. The tax is 0% on values up to EUR170,860.

After the EU finally agreed its Tax Directive in June, 2003. Cyprus announced that it would implement the 'information sharing' provision of the Directive on entry to the Union in 2004. This means that information about savings returns received in Cyprus by nationals of other EU countries is now being passed to the tax authorities in the individuals' home countries.

NB: Cyprus tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is advisable.

Cyprus does not have anti-avoidance provisions, CFC rules or transfer pricing rules. It is clear that an resident expatriate working in or from Cyprus is in a good position to acquire and maintain offshore assets, including assets in Cyprus.

American citizens, and nationals of the very few other countries that tax world-wide income on the basis of citizenship, won't be able to take advantage of the low-tax environment in Cyprus, but for all other nationals, it is available.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 35 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.