The appeal of Cyprus as a relocation destination goes beyond the more obvious temptations of sunny weather, golden beaches and traditional Mediterranean food. There has also been an orchestrated effort on behalf of the government to develop the island’s business ecosystem, by providing various tax and other fiscal incentives.

This article outlines the personal taxation framework in Cyprus and focuses on the existing and newly-introduced tax incentives that can be utilised by individuals choosing to take employment, retire, or carry on a business in Cyprus. It also summarises recent immigration developments allowing third-country nationals to permanently reside and take employment in Cyprus upon fulfilment of specific requirements. 

Personal tax framework in Cyprus

Income tax

This is applied on the worldwide, active income of Cyprus-resident individuals and Cyprus-sourced income of non-residents. A progressive personal income tax system is employed under which the first €19,500 of income is exempt, and income beyond this threshold is taxed progressively at income tax rates starting at 20% and reaching 35% for taxable income above €60,000, as indicated below. Active income includes employment income, pensions, rental income, royalties and profits from a business.

Special defence contribution (SDC)

This is payable only by Cyprus-resident and domiciled individuals on their dividends, rents and interest. This scope of SDC legislation is therefore narrower than income tax legislation. A flat rate of 17% is applied on dividends and interest, and a 3% rate is applied on 75% of the gross rental income.

Capital gains tax (CGT)

This is applied at the rate of 20% on gains from the disposal of immovable property in Cyprus, or shares in companies with immovable property in Cyprus. The tax is applied irrespective of the tax residency of the individual disposing the property in Cyprus.

No CGT arises on the disposal of immovable property situated outside Cyprus.

Social insurance and general health system contributions

Individuals employed in Cyprus are subject to social insurance contributions on their earnings at the rate of 8.8%. The rate is 16.6% for the self-employed. The maximum amount of insurable earnings for 2024 is €62,868. 

A general health system (GHS) contribution of 2.65% is also applied on the worldwide income of Cyprus-resident individuals and on the Cyprus-sourced income of non-resident individuals. The income subject to GHS contributions is capped at €180,000 per year.

Inheritance tax

There is no inheritance tax in Cyprus, no tax up gifts and no estate duties.

Tax incentives for individuals

Wider residency rules/the 60-day rule

Tax residency in Cyprus is attained if an individual spends more than 183 days in Cyprus in a calendar year. However, with effect from 2017, an alternative route to Cyprus tax residency is possible, the so-called ‘60-day rule’. Under the 60-day rule, individuals may attain tax residency provided that:

• they spend more than 60 days in Cyprus during a calendar year; 
• they have a house in Cyprus either owned or rented; 
• they carry on a business in Cyprus, are employed or hold office in Cyprus; 
• they do not spend more than 183 days in any other country; and 
• they are not tax resident in any other country.

The implication is that it might be easier for an individual to qualify under the tax residency rules and hence benefit from a competitive personal taxation system.

Domicile

Domicile provisions are important in the context of SDC legislation. The application of SDC is restricted to the passive income of individuals who are both resident and domiciled by origin in Cyprus. Domicile by origin refers to the father’s domicile at the time of the individual’s birth. As a result, a person born to a non-Cypriot domiciled father shall be considered as non-domiciled in Cyprus. The implication is that such an individual may relocate to Cyprus, take up tax residency and benefit from an SDC exemption on his/her passive income. However, the benefit lapses once the individual has been a tax resident of Cyprus for 17 out of the past 20 years. 

A special exemption applies for expatriates who may also claim the non-domicile status under specific conditions, even though they were born to a Cypriot-domiciled father.

First-employment tax reliefs

There is 20% tax relief on employment income of up to €8,550 for the year in respect of the person’s first employment in Cyprus. The exemption is granted for a period of seven years, starting from the following year of employment. To qualify for this exemption, an individual must have worked for a non-Cyprus tax resident employer for three consecutive years immediately prior to the commencement of the employment in Cyprus. 

There is 50% relief on the remuneration from employment in Cyprus, which commences after 1 January 2022, provided that the individual earns more than €55,000 on an annual basis. The relief is granted for a period of 17 years starting from the year of employment. To qualify for this relief, an individual must have been non-Cyprus resident for 15 consecutive years immediately prior to the commencement of their first employment in Cyprus. This relief cannot be claimed simultaneously with the 20% exemption mentioned above.

The 90-day overseas employment rule

Remuneration from salaried services rendered outside Cyprus for a period exceeding 90 days in a calendar year is exempt from income tax in Cyprus. The individual must work for a non-resident employer. 

Special rules for executives working in the fund industry

Qualifying employees and executives of fund management companies or internally managed funds, who have been non-tax residents of Cyprus for at least three out of the five years preceding their employment in Cyprus, may elect for special rules to apply to their variable remuneration, which includes the carried interest earned. The special regime provides for a flat income tax rate of 8%, which is applied separately on their variable remuneration, with a minimum annual tax of €10,000. The election can be made on an annual basis for a maximum of 10 years. Where a person elects for the special rules to apply, they cannot simultaneously claim the first employment reliefs of 20% or 50%.

Special rules for foreign pension income

Foreign pension income earned by a Cyprus tax-resident individual can be taxed separately under a special model of taxation, upon annual election by the taxpayer. This provides for a flat rate of 5% on annual pension income exceeding €3,420.

Deductions for investment in innovative SMEs

An allowable deduction for investments in approved innovative small and medium-sized enterprises (SMEs) is available against the taxable income of an individual. This deduction is equal to 20%, 35% or 50% of the investment amount depending on the characteristics of the investment. It is restricted to 50% of the individual’s taxable income in the year of the investment and capped at €150,000 per tax year. Any unused deduction can be carried forward and claimed in the next five years. This incentive is applicable until 31 December 2026. 

No income tax on disposal of shares

Any profits from the sale of securities (eg, shares, bonds, debentures, including options/rights on securities), is exempt from income tax. This also applies to the sale of units in open-end and close-end collective investment schemes. 

How it works in practice

The following example considers the total taxes payable in Cyprus by a foreign individual choosing to relocate and take up residency in Cyprus. The person is eligible for the non-domicile exemption as they were born to a non-Cyprus domiciled father. For illustration purposes the individual takes employment in Cyprus with an annual remuneration of €70,000, receives €30,000 in dividends, and €10,000 of deposit interest. Upon relocating to Cyprus, the individual sells their immovable property abroad materialising a gain of €100,000.

Recent immigration developments for third country nationals

Digital nomad visa

With a strategic view to develop the business ecosystem in Cyprus, the digital nomad visa scheme allows nationals from non-EU countries, who can perform their work location-independently using telecommunications technology, to reside temporarily in Cyprus and work for an employer registered abroad, or offer services remotely as self-employed for clients located abroad. Applicants must be able to prove that they have a stable and sufficient monthly income of €3,500. The benefits include a right of residency in Cyprus for one year with a possibility of renewal for further two years. 

New EU blue card scheme

Under the newly-introduced EU blue card scheme, highly-skilled, non-EU nationals, may apply for a visa to live and work in Cyprus. The rationale is to attract professionals to address personnel shortages in certain economic sectors. Applicants must present a valid employment contract with a Cyprus-registered company, for a duration of at least six months, in a highly skilled position. Evidence of high skill is demonstrated by higher professional qualifications or past professional experience in the fields of information technology. In addition, the salary threshold for the EU blue card scheme is set to between 1 and 1.6 times the average annual national salary. 

Building for the future

Over the past years Cyprus has made a conscious effort to strengthen its business ecosystem and elevate its image as a global technology hub as well as a destination for collective investments. These efforts have been enhanced by a range of tax and fiscal incentives including wider-scope residency rules, non-domicile provisions and first-employment exemptions. Recent immigration developments such as the Cyprus nomad visa and the EU blue card scheme have also made it possible for highly skilled non-EU nationals to live and work in the island. 

This attractive economic framework has made Cyprus a top relocation destination for experienced professionals, talented individuals and expatriates. Clearly, individuals considering moving to Cyprus must consider their personal circumstances and seek professional advice to carefully evaluate all of the tax implications.

Constantinos Kounnis BA, FCA, ADIT, Managing Director at C Kounnis & Partners Ltd, member of the Tax Committee of the Institute of Certified Public Accountants in Cyprus, and Tax Lecturer for ADIT and ACCA students. 

For more information, see ICAEW’s webpage Tax in Cyprus.