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How to set up your taxes in Cyprus

Table of Contents
I.How to set up your taxes in Cyprus
1. 1.How it works
1. 1. 1.Pros & Cons
1. 1. 2.How to apply for the Cyprus Digital Nomad Visa
1. 1. 3.Fees
1. 1. 4.How does Cyprus benefit from this system?
Who will this be the most beneficial for? Digital nomads and location independent workers who plan to stay in the country for at least two months and do not plan to stay in any other country for more than 183 days of the year. Also, remote workers that plan to live in the country for more than 183 days.
Difficulty of applying from 1-5: 3 - Due to a yearly quota on applications and high levels of bureaucracy.
Are there any citizens of specific countries that can’t apply? There are currently no restrictions on who can apply.
What % of the process can be done online? 50% - There are online forms you can use to apply and agents who can help, but you will still need to visit an embassy in person.

How to set up your taxes in Cyprus

To acquire tax resident status in Cyprus, you’ll need to ensure that you don’t reside in any other country for more than 183 days of the year and cannot be considered a tax resident in any other state. In addition, tax residents must stay on the island for sixty days per year. Most importantly, you will be expected to provide proof of business activities within the country, long-term, yearly rental agreements or property ownership documents to gain this status.
Tax residents in Cyprus are taxed according to their worldwide income. Notably, there are no specific forms you must fill out to acquire this status legally; you just have to exist and work according to the above directions.
So how to legally obtain this residency status? There are a variety of visas that allow you to stay on the island, and what you’ll need will be dependent on your passport. The following options are all viable ways to stay in Cyprus on a mid-to-long-term basis.
First off, there’s the previously mentioned Cyprus Digital Nomad visa which allows you to reside in the country and travel within the Schengen area for a year. If you’re enjoying your time there, you can extend for a further two years, but the number of extensions allowed is capped at just one, allowing for a maximum of a three-year stay. Because of this cap, the visa is not a path to permanent residency, which according to Cyprian law, can only be applied for after living in the country for five years. To be eligible for the visa, you will need to prove that you work remotely and are employed by a non-Cypriot company. Self-employed individuals who offer online services are not allowed to provide services within the country. The minimum income you need to prove to receive the visa is relatively high, coming in at 3500 EUR after deducting contributions and taxes.
EU citizens do not require the Cyprus Digital Nomad visa to live within the country and can enjoy the favorable tax benefits the island offers without it. For non-EU citizens who wish to stay long-term and do not want to go through a typical work visa process, there’s the option of obtaining a Golden Visa, which can be used as an immediate path toward permanent residency.
In 2022, the yearly visa quota is capped at 500, but this number is expected to rise as it has already jumped from an allowance of 100 in 2021.

How it works

The preferential tax rate in Cyprus through the incorporation of a company and local and foreign dividends received sits at:
  • 12.5% for corporate income tax (CIT).
  • 0% rate for dividends.
  • A 2.65% General Health System tax, applies to rental, interest and dividends. This specific tax will be taken from the first annual income of 180,000 EUR or more. This specific tax will be taken from your first annual income. Different rates will apply if you’re in a higher or lower income bracket.
Some foreign-sourced income could be exempt from this 12.5% corporate income tax, namely:
  • Interest earnings (excluding when interest income is the core business activity of the company).
  • Foreign exchange (FX) gains, excluding FX gains from trading in foreign currencies and related derivatives.
  • Dividends/Profits paid out by a foreign owned company to the Cypriot entity.
Although all worldwide income is subject to this progressive income tax, you can apply for tax credits if you have already paid tax where the revenue originated. You’re considered domiciled in Cyprus if you have parents who are permanent Cypriot residents or you have personally resided there for 17 years. Suppose this is the case, and you are considered a tax resident. In that case, you will also be expected to pay a special Defense Contribution tax of 17% on dividends, 30% on any passive interest received and 3% on 75% of your gross rental income. These rates also apply to worldwide income.

Pros & Cons

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  • Preferential tax rates of just 12.5% (CIT).
  • For those on the Nomad Visa, family members can also stay in Cyprus for their duration and will be granted a residence permit that expires at the same time as the visa. However, Cyprus prohibits family members from working or engaging in any type of economic activity while there.
  • There are significantly low crime rates, a low cost of living, great weather patterns and English is widely spoken.
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  • Only 500 visas are issued annually, although this Is expected to increase.
  • A high monthly income bracket (3500 EUR after taxes).
  • High levels of bureaucracy.
  • Taxation on worldwide income.

How to apply for the Cyprus Digital Nomad Visa

If you’re arriving in Cyprus and want to obtain the Cyprus Digital Nomad Visa, you’ll need to apply to the Civil Registry and Migration Department within three months of arriving. The easiest way to do this is to come into the country on a tourist visa and then complete the bureaucratic processes within.
Individuals can do this alone, but it’s highly recommended to receive the help of an agent to navigate the bureaucracy involved. An agent can also operate on your behalf before you enter the country to get things started; however, you will eventually need to present yourself in person to give over biometric data and other relevant documents.
If you’re currently in Cyprus under a different status, you can still apply for this visa; you just have to meet the general conditions.
To apply, you’ll need to hand over:
  • Salary slips or bank statements proving a minimum threshold of 3,500 Euros after-tax per month. If you’re coming with family, this amount will increase by 20% per spouse and 15% per minor child.
  • Proof of medical insurance covering at least 30,000 EUR of in-patient, and out-patient care alongside transportation of mortal remains.
  • A declaration that you or any of your dependents do not intend to work, provide services, or be engaged with any kind of business with any companies or clients located in Cyprus.
  • Proof of a clean criminal record from your country of residence.
  • Documents showing that you have suitable accommodation within Cyprus.

Fees

70 EUR to be registered in the Cypriot ‘Aliens Register’, and another 70 EUR for an Issuance or renewal of a temporary residence permit.

How does Cyprus benefit from this system?

The Cypriot government has acknowledged that, as a result of the Covid-19 pandemic, new ways of working have emerged globally. The Digital Nomad Visa initiative aims to capitalise on that by promoting the island as a digital service centre. The programme is aimed to help Cyprus’s business and economic growth in conjunction with the country’s other incentives.

Disclaimer: SafetyWing and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own independent tax, legal and accounting advisors before making any decisions or engaging in any transaction.

About the author

Luke Poulson

Researcher & Writer
Luke has been traveling around the globe for the last decade and is currently based in Chiang Mai, Thailand. He's been working remotely on everything from directing music festivals, to online ESL coaching, to writing and contributing as a researcher for Borderless. He is a passionate advocate for the modern nomadic way of life and enjoys getting others started on their journey towards remote living.

Nick Georgilopoulos

Founder | Business Strategy Consultant
The Consulting Company & Pnyca
Nick is a business strategy consultant, currently based in London but traveling the world. He is the founder of The Consulting Company, which specializes in startup and SME growth, finance, operations and tax optimization. Coming from a Mechanical Engineering background but with extensive knowledge in finance, tax law and project management, Nick is a problem solver at heart. He is also building Pnyca - an app reinventing democracy and citizen engagement.