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Why Choose Cyprus for Tax Residency?
Cyprus offers a strategic location, attractive tax benefits, and a high quality of life, making it a preferred destination for individuals and businesses. The tax system is based on residency, with two main ways to qualify: the 183-day rule and the 60-day rule.
183-Day Rule: Standard Tax Residency
An individual is considered a tax resident of Cyprus if they spend more than 183 days in Cyprus within a calendar year. As a tax resident, individuals are taxed on their worldwide income, but they can benefit from Cyprus's favorable tax system, including:
- A 5% corporate tax rate, one of the lowest in Europe.
- No tax on dividends, interest, or rental income for Non-Domiciled
- No inheritance, wealth, or gift taxes.
- Double Tax Treaties with over 65 countries, ensuring tax efficiency for international business.
60-Day Rule: Alternative Tax Residency
The 60-day rule allows individuals to become tax residents of Cyprus without the need to stay for more than 183 days, provided they meet the following conditions:
- Stay in Cyprus for at least 60 days within the tax year.
- Do not spend more than 183 days in any other country within the same tax year.
- Be employed, own a business, or hold an office in a Cyprus-based company during the tax year.
- Maintain a permanent residence in Cyprus, either owned or rented.
If all these conditions are met, the individual is considered a Cyprus tax resident and enjoys the same tax benefits as those under the 183-day rule.
How Days Are Counted for Tax Residency
The calculation of days spent in Cyprus is straightforward:
- Arrival in Cyprus counts as a day in Cyprus.
- Departure from Cyprus counts as a day outside Cyprus.
- Arrival and departure on the same day counts as a day in Cyprus.
- Departure and arrival on the same day counts as a day outside Cyprus.
Benefits of Becoming a Cyprus Tax Resident
- Exemption from Special Defence Contribution (SDC) tax on dividends, interest, and rental income forNon-Domiciled
- Attractive personal income tax exemptions, including:
- 50% exemption on employment income exceeding €55,000 (previously €100,000) for a period of 17 years (previously 10 years) for new residents moving to Cyprus for employment.
- 20% exemption (or up to €8,550) for new Cyprus tax residents earning below €55,000, valid until 2030 (previously 2025).
- Corporate Tax remains at 5%.
- Capital Gains Tax (CGT) applies only to the sale of real estate located in Cyprus.
- Social insurance contributions capped at €60,060 annually (previously €54,864), with a rate of 8% for both employees and employers.
- National Health Insurance System (NHIS) contributions of 65% for employees and 2.90% for employers, with a cap at €180,000.
Who Benefits from the 60-Day Rule?
The 60-day rule is particularly advantageous for entrepreneurs, freelancers, digital nomads, and high-net-worth individuals who want to establish tax residency in Cyprus while maintaining international mobility.
Conclusion
Choosing between the 183-day rule and the 60-day rule depends on your lifestyle and business activities. If you need flexibility and minimal physical presence, the 60-day rule is ideal. However, if you plan to stay longer in Cyprus, the 183-day rule is the standard option.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
