Cyprus, although a small country with a population of less than 1 million, has over the last few years attracted HNWI (high net worth individuals) who are looking to either relocate to another country for tax or business reasons or because of the unique features of the island and its offering.
Since COVID-19 and the war in Ukraine, Cyprus has sought to attract even more HNWI as such individuals have been re-assessing their priorities and a jurisdiction like Cyprus, for the reasons set out below, is very strategic and highly attractive.
Headquartering in Cyprus
Cyprus has recently implemented an action plan, called “Strategy for Attracting Businesses for Activities or/and Expansion of their Activities in Cyprus” with an aim to attract HNWI and their businesses, and indirectly to attract talent.
There is a new policy for the employment of third country high skilled nationals such that the newly established Business-Facilitation-Unit shall provide its approval to the prospective employer company, ie that it is indeed as an employer eligible under these new rules to submit applications for the issuance of residence/employment permits for its employees.
The businesses which seem to be attracted are mostly technology companies and in the last couple of years, we have seen many such prominent companies, which have sought to set up branches or relocate their back offices in Cyprus either for tax reasons or for other financial reasons. As a result, hundreds of key employees and their families have also relocated and obtained work visas or residence permits in Cyprus. In addition, Cyprus benefits from excellent international and English-speaking schools, which children of such relocated individuals could attend and therefore this is a major advantage for families deciding to relocate.
In addition to the above, an alternative route available to third country nationals, is the obtaining of the Digital Nomad Visa, a concept which evolved considerably during COVID19, as during national lockdowns, a number of employees wished to work remotely from Cyprus, benefitting from the nicer weather and environment, while maintaining employers/clients outside Cyprus.
Trusts and Estate Planning
There are several beneficial succession laws in Cyprus and estates of individuals domiciled in Cyprus are disposed in accordance to the relevant legislation.
Whilst estate planning is usually undertaken through wills or trusts, there is no inheritance tax in Cyprus. Setting up a trust in Cyprus, can serve asset wealth protection reasons as well as estate planning reasons, as they can offer tax and other advantages.
Cyprus is also a jurisdiction of choice, primarily because of its quite straightforward procedures, with regards to family law matters, including, inter alia, for commencing divorce proceedings. One of the main reasons is that the only requirement for such proceedings to commence in Cyprus, is for one of the spouses to be living in Cyprus for at least three months (even if the wedding did not happen in Cyprus). Lastly, another important advantage is that the marriage itself does not affect the independence of the estate of each spouse.
Impact of the War in Ukraine
Although, following the commencement of the war and the imposition of sanctions, there was a slight worry that business would slow down in Cyprus, a number of international companies (including, amongst others, from CIS), mostly in the technology sector, have sought to relocate together with their employees and their families and to take advantage of all the benefits the country has to offer. As a result, Cyprus, and more specifically the city of Limassol, has become a hub for such businesses, including fintech, trading and crypto assets companies, creating a very active and competitive business environment, which in turn attracts more HNWI.
Tax – Non-Dom Regime
An individual may enjoy the Cyprus Non-Domiciled status if he/she has not been a tax resident of Cyprus for a period of 20 years prior to 16/07/2015. The main benefit of the scheme is that there is no tax liability on income from interest and dividends, from Cyprus or any other country.
• stay at least 60 full days in Cyprus, during each calendar year;
• rent/buy a house/flat;
• demonstrate “its economic interest in Cyprus”, as the law stipulates; and
• not be a tax resident and/or stay 183 days or more in any other country.
Tax – Other Considerations
We set out below some other key tax features which attract HNWI and their businesses in Cyprus:
• one of the most attractive tax regimes in Europe (corporate tax rate is 12.5%), fully compliant with EU and OECD regulations;
• exemption of profits realised on disposal of securities irrespective of whether the profits and gains are considered to be of a revenue or capital nature. Securities, as defined in the law, include shares, bonds, debentures, founder’s shares and other securities of companies or other legal persons and options over such securities;
• no withholding taxes on dividends and interest paid to non-tax residents;
• profits of a permanent establishment on a Cypriot tax resident company main-tained abroad are generally exempt from tax in Cyprus;
• a 100% exemption from personal income tax for remuneration earned from an employment exercised outside Cyprus for a period of more than 90 days (in aggregate) in a tax year for a non-Cyprus tax resident employer/foreign perma-nent establishment of a Cyprus tax resident employer;
• there is no wealth tax, gift tax or inheritance tax in Cyprus;
• the new Cyprus IP box allows for a deductible notional expense calculated as 80% x qualifying profits from qualifying Intellectual Property. Only 20% of quali-fying IP income (after costs) is taken into account for tax purposes. In conjunc-tion with the corporate tax rate of 12.5%, the effective tax rate is 2.5%. Qualify-ing assets include patents and software copyrights;
• a 50% exemption on remuneration applies for first employments commencing as of 1/01/2022 exercised in Cyprus with remuneration exceeding EUR55,000 per annum, by individuals who were not a resident of Cyprus for a period of at least 10 consecutive tax years immediately prior to the commencement of their employment in Cyprus. For each individual the exemption will apply once in their lifetime for a period of 17 years. Subject to certain conditions, individuals whose employment commenced prior to 1 January 2022, may also be eligible to transition into the new 50% exemption.
Cyprus benefits from a stable legal system and from all EU law instruments – for example, the EU’s free movement of people regime. The legal system is based on the English common law system and legal reforms have been implemented recently which include the adoption of new CP Rules (similar to the English ones) and a 3-tier court system, with a specialist commercial court to hear high-value commercial claims exclusively, all of which would benefit HNWI both from a business as well as a personal perspective.
All of the above factors outlined in this article, combined with the unique features of the island, ie lowest crime rates, having the best climate with 340 days sunshine per annum, high quality of life, being an EU member situated at the crossroads of three continents, with highly skilled and trained labour, and with attractive laws for estate planning, trusts, etc, render the country as a very attractive choice for living but also for conducting business for any HNWI.