Cyprus offers two main criteria for determining tax residency: the 183-Day Rule and the 60-Day Rule.

183-Day Rule

An individual who spends more than 183 days in Cyprus within a calendar year is considered a tax resident. Such residents are taxed on their worldwide income and can take advantage of Cyprus’s personal tax benefits and avoid double taxation.

60-Day Rule

Introduced in 2017, the 60-day rule provides flexibility for high-profile individuals, professionals, and business owners who cannot meet the 183-day requirement. To qualify, an individual must:

1. Spend at least 60 days in Cyprus during the tax year.
2. Not reside in any other country for more than 183 days.
3. Not be a tax resident in any other country.
4. Engage in business, hold employment, or serve as a director in a Cyprus tax resident company.
5. Maintain a permanent residence in Cyprus (either owned or rented).

Tax Benefits for Cyprus Tax Residents

1. Non-Domicile Status: Non-domiciled residents are exempt from the Special Defence Contribution (SDC) tax on dividends, interest, and rental income for up to 17 years.
2. Income Exemptions:
   • New 50% Exemption: Effective from 1 January 2022, for first employments commencing as of this date in Cyprus, with annual remuneration exceeding €55,000. This exemption is available for individuals who were not Cyprus tax residents for at least 10 consecutive tax years prior to the start of their employment. The exemption applies for a lifetime period of 17 years.
   • New 20% Exemption: For first employments in Cyprus by individuals not resident in Cyprus for at least 3 consecutive tax years and previously employed outside Cyprus by a non-resident employer. The exemption, capped at €8,550 per annum, is available for 7 years following the tax year of employment commencement. Individuals eligible for the 50% exemption cannot claim this exemption.
   • No tax on profits from the sale of securities (e.g., shares, bonds).
3. Employment Income Abroad: Income earned from employment outside Cyprus, in a foreign permanent establishment of a Cyprus tax resident company, is exempt from tax if employment exceeds 90 days per year.

Choosing the Best Residency Rule

Selecting the best tax residency rule depends on your personal and business circumstances. The 60-day rule offers flexibility for those who travel frequently, while the 183-day rule provides a straightforward residency basis.

By understanding these rules, individuals and businesses can make informed decisions to optimize their tax positions in Cyprus. Whether you choose the 60-day or 183-day rule, Cyprus’s tax regime remains one of the most attractive in Europe.

For further guidance on how to become a tax resident in Cyprus or the tax benefits available, feel free to contact our firm for a personalized consultation.