Globe-Trotting Sportsman Or Entertainer: Cyprus

A Cypriot citizen with extensive, international, multi-sourced income is not in a particularly good tax situation unless he or she can establish non-residence, since full, world-wide taxation of income will apply, albeit the rates are not very high.

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%.

If resident in Cyprus, the peripatetic professional may well find herself paying withholding tax in a number of countries which cannot in some cases be reclaimed or set off against Cypriot taxation because of the absence of a tax treaty.

Cyprus-based sportsmen and entertainers would want to remain non-resident if at all possible. Once resident, they would be taxable on world-wide income.

Non-residents of Cyprus are taxed in Cyprus on employment income (including benefits), in relation to services rendered in Cyprus, profits from a business activity which is carried out through a permanent establishment in Cyprus, rentals from immoveable property situated in Cyprus, and pensions in respect of employment exercised in Cyprus, with the exception of pensions paid from a fund established by the Government or local authority.

These rules are unlikely to apply to sportsmen and entertainers. Generally, revenues they receive from professional activity in Cyprus are subject to a withholding tax of 10%.

Foreign citizens, resident or otherwise, pay 5% on pension income received in Cyprus above EUR3,417 per annum.

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

• 3% on: interest received by provident funds; the profits of semi-governmental bodies; rental income received by a Cyprus individual or corporate resident from immovable property (after deducting 25%); interest received by an individual with a yearly income below EUR11,960 and interest received by individuals from Government bonds and Government savings certificates.
• 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.

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 annual real estate taxes on a sliding scale from nil to 4%, based on market value.

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.

Non-resident sportsmen and entertainers may want to consider a Cyprus International Trust, which has the following key characteristics:

• the settlor must be non-resident
• the beneficiaries must also be non-resident (except for local charities)
• one of the Trustees must be Cypriot (individual or corporate)
• the trust period may be up to 100 years (longer for charitable trusts)
• confidentiality is protected in the law, and foreign judgements are specifically non-recognized
• there is no registration requirement
• trust documents are in English
• trust assets may not include immovable property in Cyprus
• creditors have to prove intent and must claim within two years
• there is Stamp Duty of CYP250
• broadly speaking, the income and assets of International Trusts are not taxable in Cyprus

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.

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.

In choosing between various types of offshore asset for investment purposes, the main consideration for a Cyprus-based individual will be his or her intended residential plans following departure from Cyprus. If the plan is to move on on to another offshore jurisdiction, then investment choices will not be much constrained, but if the plan is to return to a high-tax jurisdiction, then it is vital to study the anti-avoidance legislation of that jurisdiction before acquiring offshore assets. Some jurisdictions tax offshore assets more severely than domestic assets and 'look through' trust arrangements, while others accept trust assets as being outwith the tax net.

Equally, if it is planned to return to a high-tax jurisdiction, almost all of which tax world-wide income, then plans must be made to shelter income insofar as this is possible, by using trusts or other tax-distancing vehicles, if this is practicable within the tax regime of the chosen jurisdiction. The UK offers a special regime which may be helpful (select 'Globe-trotting Sportsman or Entertainer' and 'UK').

If the eventual residential jurisdiction is one of those that has a very restrictive tax regime, then individuals falling under this heading may need to resort to corporate structures to market their skills and manage derivative income flows. It may well be that these can usefully be based in offshore jurisdictions, although complex structures may be necessary if corporate anti-avoidance rules are to be avoided.

www.lowtax.net contains details of the corporate and individual tax regimes for 50 offshore jurisdictions.

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.